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4 Insurance Picks As Fed Keeps Rate Unchanged, Hints Rate Cut

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As expected, the Federal Reserve kept interest rate unchanged within its target range of 2.25% to 2.5% in its two-day June FOMC meeting that concluded on Jun 19. New projections indicate that the Fed might lower rate in 2020. Per reports, at least eight Fed members expect a rate cut by 2019.

Dissatisfying trade negotiations and data pointing to a softening economy could lead to a rate cut, per Fed chair Jerome Powell. He backed the central bank’s decision with an intention “to sustain the economic expansion, with a strong job market and stable prices, for the benefit of the American people.”

Major indexes, namely S&P 500, Nasdaq and Dow Jones Industrial Average gained in yesterday’s trading session. However, the benchmark 10-year U.S. Treasury yield slid about 2% post the Fed’s hint of lowering interest rate.

Fed officials expect 2019 interest rate at 2.4%, unchanged from its March FOMC meeting. However, interest rate projection for 2020 and 2021 has been revised down.  For 2020, the rate is now projected to be 2.1%, down from 2.6% while for 2021, the rate is projected to be 2.4% from 2.6% expected earlier. The same should be 2.5% over the long haul, down from 2.8% forecast at the meeting held in March.

The Fed also provided an updated view on unemployment. Fed officials expect the unemployment rate at 3.5% for 2019, 3.7% for 2019 and 3.8% for 2020. These projections have been lowered from 3.7%, 3.8% and 3.9% respectively projected at its March FOMC meeting despite a strong labor market. Over the longer term, unemployment rate is estimated to be 2.5%, down from 2.8% expected earlier.

A spurt in employment shows average increase of 0.15 million in jobs over the past three months. However, per U.S. Bureau of Labor Statistics, unemployment rate was 3.6% in May, down from 3.8% in the year-ago month.

GDP projections remained unchanged from its March meeting. Fed expects GDP for 2019, 2021 and for the longer term to be 2.1%, 1.8% and 1.9% respectively. However, only for 2020, Fed officials expect GDP to rise to 2% from the earlier projection of 1.9%.

Inflation is expected to be about 1% in 2019, 1.9% in 2020 and 2% in 2021. Fed chair Powell stated “Inflation has been running somewhat below our objective, but we have expected it to pick up, supported by solid growth and a strong job market.”

He also added “in light of increased uncertainties and muted inflation pressures, we now emphasize that the Committee will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion, with a strong labor market and inflation near its 2% objective.”

Insurers are major beneficiaries of a rising rate environment because of their sensitivity to interest rates stand strong amid uncertainties, given their strong fundamentals. Strong capital level, a not-so-active catastrophe environment, stringent underwriting standards, better pricing, improved product and services and increased adoption of technologies are positives. Year to date, the insurance industry has rallied 9.4%.

4 Best Insurance Stocks in the Current Scenario

Amid such a macro backdrop, investors may like to add stocks with strong fundamentals and potential to generate better yields.

It’s an intimidating task to zero in on underpriced stocks with high growth potential. The Zacks Stock Screener makes this work relatively simpler. The selected stocks carry a favorable Value Score and Growth Score of A or B.

Value Score helps investors identify undervalued stocks. This deviation from their fair value is what creates an exceptional upside opportunity. Growth Score analyzes a company’s growth prospects and also evaluates its corporate financial statements.

Mayfield Village, OH -based The Progressive Corporation (PGR - Free Report) provides personal and commercial auto insurance, residential property insurance, and other specialty property-casualty insurance and related services primarily in the United States. The stock has a Value Score of B and a Growth Score of A. It carries a Zacks Rank # 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Its shares have rallied 35.5% year to date, outperforming the industry’s increase.

Bloomfield, CT -based Cigna Corporation (CI - Free Report) a health service organization, provides insurance and related products and services in the United States and internationally. The stock has a Value Score of A and a Growth Score of B. It carries a Zacks Rank # 2.

Its shares have lost 15.7% year to date against the industry’s increase.

Philadelphia, PA -based Radian Group Inc. (RDN - Free Report) engages in the mortgage and real estate services business in the United States. The stock has a Value Score of A and a Growth Score of B. It carries a Zacks Rank #2.

Shares have rallied 42.6% year to date, outperforming the industry’s increase.

West Des Moines, IO -based American Equity Investment Life Holding Company (AEL - Free Report) provides life insurance products and services in the United States. The stock has a Value Score of A and a Growth Score of B. It carries a Zacks Rank # 2.

Shares have lost 2.6% year to date against the industry’s increase.

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