The Federal Reserve kept interest rates unchanged in its September FOMC meeting, as widely expected, but that has failed to cheer investors. The decision came with a strong warning that inflation is still high and another rate hike would be required.
This saw a huge selloff last week, leading to all three major indexes ending in the red. The Dow, the S&P 500 and the Nasdaq ended the week 1.9%, 2.9% and 3.6%, respectively, lower. Meanwhile, the 2-year and 10-year Treasury yields jumped to their highest levels since 2006 and 2007, respectively.
Understandably, fears of a recession have once again escalated. It would thus be wise to invest in defensive stocks like utilities with a favorable Zacks Rank that are likely to strengthen one’s portfolio.
Markets Turn Volatile Again
The Fed left interest rates intact in September, which now keeps its benchmark rate in the range of 5.25-5.5%. The central bank has so far increased interest rates by 525 basis points on 11 occasions since March 2022. September was only the second instance during this period that the Fed kept it unaltered.
However, despite the sharp increase in interest rates, which saw inflation steeply declining over the past year, it remains more than double the Fed’s 2% target rate.
The Fed has thus said that another interest rate of a quarter percentage point would be required, which is likely to come in its November meeting before they start cutting interest rates from 2024.
However, the Federal Reserve also cut its forecast for interest rate cuts in 2024 from four to two. The hawkish stance has raised concerns of a slowdown, which has been taking a toll on stocks.
Also, inflation rose again in August. The consumer price index (CPI) reading for August rose 0.6% month over month, higher than July’s rise of 0.2%.
Year over year, CPI jumped 3.7% in August, higher than the consensus estimate of a rise of 3.6%. This is also the first time since February 2022 that CPI has increased more than 0.6% month over month.
Core CPI, which strips out volatile energy and food prices, rose 0.3%, higher than the consensus estimate of a rise of 0.2%. On a year-over-year basis, CPI jumped 4.3%.
The sudden rise in inflation in August was largely driven by the jump in oil prices, which has left investors worried. Understandably, market volatility is going to stay for a longer time or at least till the time the Fed gives a clearer picture of the economic health of the nation in the near term.
Investors should thus consider stocks that offer risk-adjusted returns like
American Water Works Company, Inc. ( AWK Quick Quote AWK - Free Report) , PepsiCo, Inc. ( PEP Quick Quote PEP - Free Report) , Vistra Corp. ( VST Quick Quote VST - Free Report) , McKesson Corporation ( MCK Quick Quote MCK - Free Report) and J&J Snack Foods Corp. ( JJSF Quick Quote JJSF - Free Report) .
These stocks belong to the utilities consumer staples sector, which is non-cyclical in nature and are not largely influenced by market fluctuations. Also, these stocks belong to the category of low-beta stocks (beta greater than 0 but less than 1). Hence, the recommended approach is to invest in low-beta stocks with a high dividend yield and a favorable Zacks Rank. Each of the stocks has a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see
. the complete list of today’s Zacks #1 Rank stocks here American Water Works Company, Inc. provides essential water services to over 14 million customers in 24 states and has an employee strength of 6,500. AWK also acquires small water service providers to expand its customer base.
American Water Works Company has an expected earnings growth rate of 6.4% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.6% over the last 60 days. AWK presently has a Zacks Rank #2. Atmos Energy has a beta of 0.57 and a current dividend yield of 2.14%.
PepsiCo, Inc. is one of the leading global food and beverage companies. PEP’s complementary brands/businesses include Frito-Lay snacks, Pepsi-Cola beverages, Gatorade sports drinks, Tropicana juices and Quaker foods. PepsiCo serves customers in more than 200 countries and territories.
PepsiCo has an expected earnings growth rate of 10.2% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.3% over the last 60 days. PEP currently has a Zacks Rank #2. PepsiCo has a beta of 0.54 and a current dividend yield of 2.89%.
Vistra Corp. is an energy company. VST offers electricity and power generation, distribution and transmission solutions. Vistra Energy Corp. is based in Dallas.
Vistra Corp has an expected earnings growth rate of 220.41% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 13.8% over the last 60 days. VST currently has a Zacks Rank #1. Vistra Corp has a beta of 0.97 and a current dividend yield of 2.48%.
McKesson Corporation is a healthcare services and information technology company. McKesson operates through two segments: MCK’s Distribution Solutions segment distributes branded and generic pharmaceutical drugs along with other healthcare-related products on a global basis. McKesson Corporation’s Technology Solutions segment provides enterprise-wide clinical, patient care, financial, supply chain, and strategic management software solutions.
McKesson Corporation has an expected earnings growth rate of 4.2% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 2% over the last 60 days. MCK currently has a Zacks Rank #2. McKesson Corporation has a beta of 0.60 and a current dividend yield of 0.57%.
J&J Snack Foods Corp. is an American manufacturer, marketer and distributor of branded niche snack foods and frozen beverages for the food service and retail supermarket industries. Manufactured and distributed nationwide, JJSF’s principal products include SUPERPRETZEL, BAVARIAN BAKERY and other soft pretzels, ICEE and SLUSH PUPPIE frozen beverages, LUIGI'S, MINUTE MAID frozen juice bars and ices, WHOLE FRUIT sorbet and frozen fruit bars.
J&J Snack Foods’ expected earnings growth rate for the current year is 62.3%. The Zacks Consensus Estimate for current-year earnings has improved 16.4% over the past 60 days. JJSF currently carries a Zacks Rank #1. J&J Snack Foodshas a beta of 0.55 and a current dividend yield of 1.78%.