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Fed Indicates One Rate Cut in 2024: 5 Long-Term Picks

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On Jun 12, in his post-FOMC meeting statement, Fed Chairman Jerome Powell indicated just one cut of 25 basis points in the Fed fund rate in 2024. This is a significant reduction from three rate cuts for 2024, as hinted in the March FOMC meeting.

Consequently, the terminal rate of the benchmark lending rate increased to 5.1% this year instead of 4.6% projected in March. The Fed kept the existing interest rate range of 5.25-5.5% intact, and, the statement regarding inflation was almost the same.

The post-meeting statement said, “Inflation has eased over the past year but remains elevated.” The only change is that the new statement mentioned, “In recent months, there has been modest further progress toward the Committee’s 2% inflation objective.” The previous statement was “a lack of further progress” on inflation.

Meanwhile, a single 25 basis point rate cut this year was not bad news for Wall Street. A large section of economists and financial experts have already been pricing in no rate cut this year in stock market valuations.

Moreover, the latest “dot-plot” of the FOMC meeting hinted at a full 1% rate cut across 2025. Consequently, the terminal rate of the Fed fund rate currently stands at 4.1% by the end of 2025.

However, the Fed’s projection for long-term interest rate (a benchmark that neither boosts nor restricts growth) increased to 2.8% from the 2.6% forecast earlier. It shows that Fed officials are more inclined toward a “higher interest rate for longer” view.

At this stage, investors should think from a long-term perspective. The Fed is undoubtedly approaching the end of the higher rate regime. We may witness a rate cut at the end of this year if macro-economic data remains favorable.

Therefore, investors should accumulate equities using a buy-on-the-dip strategy. Every dip in stock prices will be a good purchasing point in order to gain handsomely once the Fed’s tighter monetary control comes to an end.

Our Top Picks

We have narrowed our search to five U.S. corporate behemoths (market capital > $50 billion) that have strong potential for this year and beyond. These companies have seen positive earnings estimate revisions in the last 30 days.

These companies’ long-term prospects are driven by their strong business model with a global presence, strong financial position, and globally acclaimed brand recognition. Each of our picks currently carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The chart below shows the price performance of our five picks year to date.

Zacks Investment Research
Image Source: Zacks Investment Research

NVIDIA Corp. (NVDA - Free Report) reported that blockbuster first-quarter fiscal 2025 revenues of $26.04 billion, soared 262% year over year, marking the third straight quarter of growth in excess of 200%. Adjusted earnings per share were $6.12, compared to $1.09 a year ago. NVDA expects sales of $28 billion in the fiscal second quarter, higher than the current consensus estimate of $26.6 billion.

NVDA expects its next-generation AI chip, called Blackwell, to be its upcoming driver. These chips will be available in data centers in the fourth quarter of fiscal 2025. On Jun 2, NVDA unveiled its new AI chip architecture called “Rubin”.

The Rubin architecture will have new GPUs to launch AI systems, CPUs and networking chips. It will also have new features like a central processor called “Vera”. Rubin is set to be introduced in 2026.

Zacks Rank #1 NVIDIA has an expected revenue and earnings growth rate of 92.6% and more than 100%, respectively, for the current year (ending January 2025). The Zacks Consensus Estimate for current-year earnings has improved 1.1% over the last seven days.

Alphabet Inc.’s (GOOGL - Free Report) robust cloud division is aiding substantial revenue growth. Expanding data centers, cloud regions and availability zones will continue to bolster GOOGL’s presence in the cloud space. Major search updates and the removal of bad ads to enhance search results continue to boost traffic on the company’s search engine.

Growing momentum across GOOGL’s mobile search is contributing further. Strengthening generative AI capabilities should aid business growth in the long term. Deepening focus on the wearables category remains a tailwind for GOOGL. An expanding presence in the autonomous driving space is a plus.

Zacks Rank #1 Alphabet has an expected revenue and earnings growth rate of 15.2% and 31%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.4% over the last 30 days.

Netflix Inc. (NFLX - Free Report) added 9.33 million paid subscribers globally in first-quarter 2024, with a rise of 1% in average revenue per subscription. NFLX attributed the robust top-line growth to its paid subscription-sharing offering (part of its password-sharing crackdown), recent price changes and the strength of its business in general.

NFLX is expected to continue dominating the streaming space, courtesy of its diversified content portfolio, which is attributable to heavy investments in the production and distribution of localized and foreign-language content.

Zacks Rank #1 Netflix has an expected revenue and earnings growth rate of 14.8% and 52.2%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.1% over the last 30 days.

Coinbase Global Inc. (COIN - Free Report) provides financial infrastructure and technology for the crypto economy in the United States and internationally. COIN offers the primary financial account in the crypto space for consumers, a marketplace with a pool of liquidity for transacting in crypto assets for institutions; and technology and services that enable developers to build crypto-based applications and securely accept crypto assets as payment.

Zacks Rank #1 Coinbase Global has an expected revenue and earnings growth rate of 83.5% and more than 100%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved more than 100% over the last 60 days.

Micron Technology Inc. (MU - Free Report) produces memory chips used in AI-based chipsets. The enormous growth of AI applications boosted demand for MU’s high bandwidth memory chips. MU is benefiting from improved market conditions, robust sales executions and strong growth across multiple business units.

MU anticipates the pricing of DRAM and NAND chips to increase, thereby improving its revenues. The pricing benefits will primarily be driven by rising AI servers, causing a scarcity in the availability of cutting-edge DRAM and NAND supplies. Also, 5G adoption in IoT devices and wireless infrastructure is likely to spur demand for memory and storage.

Zacks Rank #2 Micron Technology has an expected revenue and earnings growth rate of 50.7% and more than 100%, respectively, for next year (ending August 2025). The Zacks Consensus Estimate for next-year earnings has improved 7% over the last 30 days.

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