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An increase in gas and rents had elevated the cost of living in September. But inflation cooled down in October, a tell-tale sign that the Federal Reserve’s aggressive monetary policy to curb price pressures has made incremental progress.
The Bureau of Labor Statistics reported that the consumer price index (CPI) increased 3.2% year over year in October, down from September’s increase of 3.7%. It’s also the lowest annual rate of increase since March 2021.
The CPI remained unchanged month over month in October for the first time since July 2022. On a monthly basis, the CPI had increased 0.4% in September. Analysts had projected a monthly increase of 0.1% and a year-over-year gain of 3.3%.
The annual increase in consumer prices in most of the categories witnessed a slight increase in October. The cost of food and shelter rose mildly. On the other hand, the cost of gasoline fell considerably.
The core CPI, which excludes the volatile energy and food prices, increased 0.2% monthly, and 4% annually. The core CPI, in reality, registered its lowest yearly increase since September 2021.
Thus, the slowdown in both the headline as well as core inflation allows the Fed to do away with its hawkish stance. The Fed has already given hints that it is done with hiking rates, and the majority of market participants are now expecting it to keep rates unchanged in the December meeting.
Hence, the likelihood of a pause in interest rate hikes bodes well for tech stocks. This is because rate hikes adversely impact tech’s future cash inflow, leading to fewer reinvestments in innovation and eventually hampering growth. Moreover, in case of rate hikes, the cost of borrowing of tech companies goes up, and they are left with less cash in hand.
Like tech, consumer discretionary companies also tend to benefit amid signs of cooling inflation. This is because lower price pressures will help consumers to spend more on nonobligatory items.
Hence, from an investment perspective, we have highlighted Microsoft (MSFT - Free Report) , Meta Platforms (META - Free Report) and GIII Apparel Group (GIII - Free Report) , which are most likely to make the most of less inflationary pressure. These stocks carry a Zacks Rank #1 (Strong Buy) or 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; 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 stocks here.
Microsoft is one of the largest broad-based technology providers in the world. Microsoft, currently, has a Zacks Rank #2 and a VGM Score of B.
The Zacks Consensus Estimate for its current-year earnings has moved up 2.1% over the past 60 days. MSFT’s expected earnings growth rate for the current year is 13.5%.
Meta Platforms is the world’s largest social media platform. Meta Platforms, currently, has a Zacks Rank #2 and a VGM Score of B.
The Zacks Consensus Estimate for its current-year earnings has moved up 5.5% over the past 60 days. META’s expected earnings growth rate for the current year is 44.3%.
GIII Apparel Group is a manufacturer, designer, and distributor of apparel and accessories under licensed brands, owned brands, and private label brands. GIII Apparel, currently, has a Zacks Rank #1 and a VGM Score of A.
The Zacks Consensus Estimate for its current-year earnings has moved up 2.8% over the past 60 days. GIII’s expected earnings growth rate for the current year is 14.7%.
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3 Big Winners on Signs of Inflation Cooling Down
An increase in gas and rents had elevated the cost of living in September. But inflation cooled down in October, a tell-tale sign that the Federal Reserve’s aggressive monetary policy to curb price pressures has made incremental progress.
The Bureau of Labor Statistics reported that the consumer price index (CPI) increased 3.2% year over year in October, down from September’s increase of 3.7%. It’s also the lowest annual rate of increase since March 2021.
The CPI remained unchanged month over month in October for the first time since July 2022. On a monthly basis, the CPI had increased 0.4% in September. Analysts had projected a monthly increase of 0.1% and a year-over-year gain of 3.3%.
The annual increase in consumer prices in most of the categories witnessed a slight increase in October. The cost of food and shelter rose mildly. On the other hand, the cost of gasoline fell considerably.
The core CPI, which excludes the volatile energy and food prices, increased 0.2% monthly, and 4% annually. The core CPI, in reality, registered its lowest yearly increase since September 2021.
Thus, the slowdown in both the headline as well as core inflation allows the Fed to do away with its hawkish stance. The Fed has already given hints that it is done with hiking rates, and the majority of market participants are now expecting it to keep rates unchanged in the December meeting.
Hence, the likelihood of a pause in interest rate hikes bodes well for tech stocks. This is because rate hikes adversely impact tech’s future cash inflow, leading to fewer reinvestments in innovation and eventually hampering growth. Moreover, in case of rate hikes, the cost of borrowing of tech companies goes up, and they are left with less cash in hand.
Like tech, consumer discretionary companies also tend to benefit amid signs of cooling inflation. This is because lower price pressures will help consumers to spend more on nonobligatory items.
Consumers, anyhow, are expected to open up their wallets during the busy holiday season, thereby benefiting consumer discretionary players (read more: 5 Stocks to Gain as Americans Go on a Spending Spree).
Hence, from an investment perspective, we have highlighted Microsoft (MSFT - Free Report) , Meta Platforms (META - Free Report) and GIII Apparel Group (GIII - Free Report) , which are most likely to make the most of less inflationary pressure. These stocks carry a Zacks Rank #1 (Strong Buy) or 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; 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 stocks here.
Microsoft is one of the largest broad-based technology providers in the world. Microsoft, currently, has a Zacks Rank #2 and a VGM Score of B.
The Zacks Consensus Estimate for its current-year earnings has moved up 2.1% over the past 60 days. MSFT’s expected earnings growth rate for the current year is 13.5%.
Meta Platforms is the world’s largest social media platform. Meta Platforms, currently, has a Zacks Rank #2 and a VGM Score of B.
The Zacks Consensus Estimate for its current-year earnings has moved up 5.5% over the past 60 days. META’s expected earnings growth rate for the current year is 44.3%.
GIII Apparel Group is a manufacturer, designer, and distributor of apparel and accessories under licensed brands, owned brands, and private label brands. GIII Apparel, currently, has a Zacks Rank #1 and a VGM Score of A.
The Zacks Consensus Estimate for its current-year earnings has moved up 2.8% over the past 60 days. GIII’s expected earnings growth rate for the current year is 14.7%.