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3 Top Stocks to Gain From Hawkish Fed Expectations
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A couple of solid economic data at the beginning of 2023 have raised rate hike expectations. Thanks to consumers splurging on a variety of goods, including motor vehicles, sales at U.S. retailers increased 3% in January, way more than analysts’ expectations of an increase of 1.9%, reported by the Commerce Department. Retail sales rebounded in January from a decline in December and have notched their biggest jump since March 2021.
Barring auto sales, retail sales advanced 2.3%. Analysts had estimated ex-auto sales to increase 0.9%. By the way, retail sales were broad-based as consumers spent despite rising inflationary pressure. Food services, home furnishing stores, motor parts dealers and appliance stores saw sales rise 7.2%, 4.4%, 5.9%, and 3.5%, correspondingly. Online retailers also registered a rise in sales by 1.3%.
American consumers not only spent in January but also witnessed a healthy rise in jobs across the length and breadth of the country. Healthcare, leisure, and white-collar businesses, all added jobs. According to the U.S. Bureau of Labor Statistics, in January, 517,000 jobs were added, beating analysts’ forecast of 187,000 job gains. What’s more, the job additions were much stronger than anticipated in the latter half of 2022, and eventually, the unemployment rate in January came down to 3.4%, its lowest since 1969.
However, with January’s job addition report remaining astounding all around, along with an increase in consumer spending levels, prices of indispensable goods and services are well poised to scale up. Notably, the consumer price index had already advanced 0.5% in January and 6.4% year over year. That’s more than market pundits’ expectations of a monthly gain of 0.4% and an annual gain of 6.2%.
But the Federal Reserve doesn’t want prices to remain stubbornly higher, which may subsequently compel them to remain aggressive and continue hiking interest rates. The CME FedWatch tool noted that market pundits anticipate 90.8% odds of a 25 basis-point increase in interest rates in March. Simultaneously, 73.2% are now factoring in a similar increase in interest rates in May. In reality, interest rates are expected to remain above 5% until 2024.
Now, increasing interest rates may not bode well for the broader stock market as it deters economic growth. But the financial sector benefits from rising interest rates. A hike in interest rates boosts banks’ profit margin by increasing the spread between what they pay such as short-term liabilities and what they earn, including long-term assets like loans.
Meanwhile, insurance players earn from investing premiums received from policyholders’ government and corporate bonds. With rate hikes, yields on these bonds tend to rise. This helps insurers to invest premiums at a higher yield and generate more investment income. Brokerage and asset management companies also gain in a rising rate environment as it is mostly associated with periods of economic strength.
Given the aforesaid benefits, we have thus selected three sturdy stocks from these areas that boast a solid Zacks Rank #2 (Buy). The search was also narrowed down with a VGM Score of A or B. Here V stands for Value, G for Growth, and M for Momentum and the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
F.N.B. (FNB - Free Report) is a financial holding company. It offers commercial banking solutions, consumer banking products and services, and wealth management services through its subsidiary network. Currently, F.N.B. has a VGM Score of A.
The Zacks Consensus Estimate for its current-year earnings has moved up 5.8% over the past 60 days. FNB’s expected earnings growth rate for the current year is 16.4%.
Voya Financial (VOYA - Free Report) operates as a retirement, investment, and employee benefits company in the United States. The company was formerly known as ING U.S., Inc. and changed its name to Voya Financial, Inc. in April 2014. Presently, Voya Financial has a VGM Score of B.
The Zacks Consensus Estimate for its current-year earnings has moved up 4.5% over the past 60 days. VOYA’s expected earnings growth rate for the current year is 4.8%.
AssetMark Financial (AMK - Free Report) provides wealth management and technology solutions to financial advisers and their clients. Currently, AssetMark Financial has a VGM Score of B.
The Zacks Consensus Estimate for its next-year earnings has moved up 5.1% over the past 60 days. AMK’s expected earnings growth rate for the current year is 23.6%.
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3 Top Stocks to Gain From Hawkish Fed Expectations
A couple of solid economic data at the beginning of 2023 have raised rate hike expectations. Thanks to consumers splurging on a variety of goods, including motor vehicles, sales at U.S. retailers increased 3% in January, way more than analysts’ expectations of an increase of 1.9%, reported by the Commerce Department. Retail sales rebounded in January from a decline in December and have notched their biggest jump since March 2021.
Barring auto sales, retail sales advanced 2.3%. Analysts had estimated ex-auto sales to increase 0.9%. By the way, retail sales were broad-based as consumers spent despite rising inflationary pressure. Food services, home furnishing stores, motor parts dealers and appliance stores saw sales rise 7.2%, 4.4%, 5.9%, and 3.5%, correspondingly. Online retailers also registered a rise in sales by 1.3%.
American consumers not only spent in January but also witnessed a healthy rise in jobs across the length and breadth of the country. Healthcare, leisure, and white-collar businesses, all added jobs. According to the U.S. Bureau of Labor Statistics, in January, 517,000 jobs were added, beating analysts’ forecast of 187,000 job gains. What’s more, the job additions were much stronger than anticipated in the latter half of 2022, and eventually, the unemployment rate in January came down to 3.4%, its lowest since 1969.
However, with January’s job addition report remaining astounding all around, along with an increase in consumer spending levels, prices of indispensable goods and services are well poised to scale up. Notably, the consumer price index had already advanced 0.5% in January and 6.4% year over year. That’s more than market pundits’ expectations of a monthly gain of 0.4% and an annual gain of 6.2%.
But the Federal Reserve doesn’t want prices to remain stubbornly higher, which may subsequently compel them to remain aggressive and continue hiking interest rates. The CME FedWatch tool noted that market pundits anticipate 90.8% odds of a 25 basis-point increase in interest rates in March. Simultaneously, 73.2% are now factoring in a similar increase in interest rates in May. In reality, interest rates are expected to remain above 5% until 2024.
Now, increasing interest rates may not bode well for the broader stock market as it deters economic growth. But the financial sector benefits from rising interest rates. A hike in interest rates boosts banks’ profit margin by increasing the spread between what they pay such as short-term liabilities and what they earn, including long-term assets like loans.
Meanwhile, insurance players earn from investing premiums received from policyholders’ government and corporate bonds. With rate hikes, yields on these bonds tend to rise. This helps insurers to invest premiums at a higher yield and generate more investment income. Brokerage and asset management companies also gain in a rising rate environment as it is mostly associated with periods of economic strength.
Given the aforesaid benefits, we have thus selected three sturdy stocks from these areas that boast a solid Zacks Rank #2 (Buy). The search was also narrowed down with a VGM Score of A or B. Here V stands for Value, G for Growth, and M for Momentum and the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
F.N.B. (FNB - Free Report) is a financial holding company. It offers commercial banking solutions, consumer banking products and services, and wealth management services through its subsidiary network. Currently, F.N.B. has a VGM Score of A.
The Zacks Consensus Estimate for its current-year earnings has moved up 5.8% over the past 60 days. FNB’s expected earnings growth rate for the current year is 16.4%.
Voya Financial (VOYA - Free Report) operates as a retirement, investment, and employee benefits company in the United States. The company was formerly known as ING U.S., Inc. and changed its name to Voya Financial, Inc. in April 2014. Presently, Voya Financial has a VGM Score of B.
The Zacks Consensus Estimate for its current-year earnings has moved up 4.5% over the past 60 days. VOYA’s expected earnings growth rate for the current year is 4.8%.
AssetMark Financial (AMK - Free Report) provides wealth management and technology solutions to financial advisers and their clients. Currently, AssetMark Financial has a VGM Score of B.
The Zacks Consensus Estimate for its next-year earnings has moved up 5.1% over the past 60 days. AMK’s expected earnings growth rate for the current year is 23.6%.