All eyes are set on the outcome of the Federal Reserve’s meeting being held under the newly-elected chairman Jerome Powell, and if you have been following the tide, the Fed leader is likely to commence his innings with a hike in the interest rate. In all likelihood, the policy makers may raise the benchmark interest rate by a quarter percentage point for the first time this year to a range of 1.5-1.75%. Notably, this would be the sixth rate hike, since the financial crisis.
Analysts were quick to point out that underlying strength of the economy, inflationary level and robust job market have set the stage for a rate hike. The Federal Committee, who have chalked out a detailed plan to shrink $4.5 trillion portfolio of Treasury bonds and mortgage-backed securities, may advocate three hikes this year on expectations of strengthening job market.
Current Economic Backdrop
We noted that the U.S. economy added a robust 313,000 jobs in February with unemployment rate continuing to hover around at its 17-year low rate of 4.1%. Moreover, a preliminary data shows that consumer-sentiment index touched a 14-year high of 102 in March, while jobless claim for the week ended Mar 10 decreased 4,000 to a seasonally adjusted 226,000.
The optimism over the health of the economy gets a further boost from the recent U.S. manufacturing activity data. The Institute for Supply Management stated that the index rose to 60.8 in February, up from the 59.1 in January.
Well the reasons for the rate hike are on the table and Fed officials may have no problem implementing it.
Is There a Possibility of a Fourth Hike This Year?
The aforementioned data and recent policy changes have given rise to a speculation that Jerome Powell’s team may choose to hike rate four times this year. Economists hinted that Trump’s $1.5 trillion tax cuts and a fear of a trade war due to tariffs on imported steel and aluminum may cause prices to rise prompting the Fed to act swiftly to contain inflation.
However, there are a group of think tanks who pointed that the Fed will definitely take into account the recent decline in U.S. retail sales, tepid wage growth in February and widening trade deficit. The U.S. retail sales fell for the third straight month in February as consumers cut back on purchases of motor vehicles and other expensive items. Further, housing starts and building permits declined in February. These are likely to hurt the first-quarter GDP rate.
4 Prominent Picks
Investors would certainly be closely watching the Fed’s future course of action as well as any outlook that may have a direct correlation with the U.S. stock market. For the time being, let’s focus on sectors that are likely to benefit from the move and pick some value-intrinsic stocks. Here we have highlighted four value stocks two from each consumer discretionary and financial sectors that have a favorable combination of a Zacks Rank #1 (Strong Buy) or 2 (Buy) and a Value Score of A or B. (Read: 3 Sectors to Benefit If Fed Hikes Rate Tomorrow)
You may consider Deckers Outdoor Corporation (DECK - Free Report) , which designs, markets and distributes footwear, apparel, and accessories. The company posted an average positive earnings surprise of 96.4% in the trailing four quarters. The company has a long-term earnings growth rate of 11.6% and a Value Score of B. The company sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
We also suggest investing in Tailored Brands, Inc. (TLRD - Free Report) with a long-term earnings growth rate of 16.5% and a Value Score of A. This operator of specialty apparel retailer delivered an average positive earnings surprise of 50.9% in the trailing four quarters. It carries a Zacks Rank #2.
Primerica, Inc. (PRI - Free Report) , which offers insurance and financial services, is a solid bet. The company has a long-term earnings growth rate of 10% and a Zacks Rank #2. The company recorded an average positive earnings surprise of 3.7% in the trailing four quarters. It has a Value Score of B.
Investors can count on CB Financial Services, Inc. (CBFV - Free Report) , which operates as the bank holding company for Community Bank. This Zacks Rank #2 company has a long-term earnings growth rate of 10% and a Value Score of B.
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