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Fed Might Cut Rates in March: Sector ETFs, Stocks to Buy
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After the worst week for U.S. stock market since the 2008 financial crisis due to the fast spreading coronavirus, central banks across the globe are expected to step in to prop up the virus-infected economy (read: 6 Equity ETFs Surviving the Market Correction).
In particular, the Federal Reserve last week signaled its willingness to cut interest rates in its Mar 17-18 meeting to support the economy. Per the latest CME FedWatch Tool, there is a 100% chance that the Fed will slash rates in March while the fed funds futures market predicts more than 70% chance of a rate cut. Goldman Sachs expects the Fed to reduce interest rate by 75 basis points (bps) between March and June. Bank of America sees a 50-bps cut.
The hopes of stimulus will offer solid catalyst for the stocks in the coming weeks.
A Boon for Sectors
In a lower-rate environment, high-dividend yielding sectors such as utilities and real estate will be the biggest beneficiaries, given their sensitivity to interest rates. This is especially true as these offer higher returns due to their outsized yields. Additionally, securities in capital-intensive sectors like telecom would benefit from lower rates. Further, lower interest rates will keep borrowing cost down, thereby resulting in higher consumer spending and rise in economic activities. This will, in turn, increase profitability across various segments. Businesses will also face lower loan rates over time (read: "At Least 3 Rate Cuts" by December? Sector ETFs to Play).
Meanwhile, gold mining stocks will also get a boost, given that these are leveraged plays on the underlying metal. Rate cuts would increase the metal’s attractiveness, pushing the bullion price higher.
Given this, we have highlighted ETFs & stocks from sectors that are expected to skyrocket on lower rates.
With market cap of $62.3 billion, Prologis Inc. (PLD - Free Report) is a leading industrial REIT that acquires, develops, operates and manages industrial real estate space in the Americas, Asia and Europe. This Zacks Rank #2 (Buy) stock is expected to record earnings increase of 12.4% this year.
Utilities
Zacks #2 (Buy) Ranked Utilities Select Sector SPDR (XLU - Free Report) provides exposure to companies from the electric utility, gas utility, multi-utility, and independent power producer and energy trader industries. It has amassed $11.2 billion in its asset base and trades in volume of 16.6 million shares per day on average (read: Yields at Record Lows: 4 Sector ETFs to Buy).
Duke Energy Corporation (DUK - Free Report) is a diversified energy company with a wide portfolio of domestic and international, natural gas and electric and regulated and unregulated businesses which supply, deliver and process energy in North America and selected international markets. It is expected to post earnings growth of 1.6% this year. The stock has a Zacks Rank #2 and market cap of $67.3 billion.
Homebuilders
SPDR S&P Homebuilders ETF (XHB - Free Report) provides exposure to the homebuilders segment with a well-diversified exposure across building products, home furnishings, home improvement retail, home furnishing retail and household appliances. It is the most popular option in the homebuilding space with AUM of $734.7 million and average daily volume of 1.8 million shares. The product charges 35 bps in annual fees and has a Zacks ETF Rank #2 (read: Here's Why You Should Buy Homebuilder ETFs Now).
PulteGroup Inc. (PHM - Free Report) is engaged in homebuilding and financial services businesses, primarily in the United States. It is expected to see earnings growth of 18.3% this year and sports a Zacks ETF Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Gold Mining
VanEck Vectors Gold Miners ETF (GDX - Free Report) is the most popular and actively traded gold miner ETF with AUM of $11.7 billion and average daily volume of around 56.6 million shares. Canadian firms account for half of the portfolio, while the United States (18.2%) and Australia (14.3%) round off the top three. The fund charges 52 bps in annual fees.
With a market cap of $20.4 billion, Franco-Nevada Corporation (FNV - Free Report) operates as a gold-focused royalty and stream company with additional interests in silver, platinum group metals, oil & gas and other resource assets. The stock is expected to see earnings growth of 30.7% year over year in 2020 and has a Zacks Rank #2.
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Fed Might Cut Rates in March: Sector ETFs, Stocks to Buy
After the worst week for U.S. stock market since the 2008 financial crisis due to the fast spreading coronavirus, central banks across the globe are expected to step in to prop up the virus-infected economy (read: 6 Equity ETFs Surviving the Market Correction).
In particular, the Federal Reserve last week signaled its willingness to cut interest rates in its Mar 17-18 meeting to support the economy. Per the latest CME FedWatch Tool, there is a 100% chance that the Fed will slash rates in March while the fed funds futures market predicts more than 70% chance of a rate cut. Goldman Sachs expects the Fed to reduce interest rate by 75 basis points (bps) between March and June. Bank of America sees a 50-bps cut.
The hopes of stimulus will offer solid catalyst for the stocks in the coming weeks.
A Boon for Sectors
In a lower-rate environment, high-dividend yielding sectors such as utilities and real estate will be the biggest beneficiaries, given their sensitivity to interest rates. This is especially true as these offer higher returns due to their outsized yields. Additionally, securities in capital-intensive sectors like telecom would benefit from lower rates. Further, lower interest rates will keep borrowing cost down, thereby resulting in higher consumer spending and rise in economic activities. This will, in turn, increase profitability across various segments. Businesses will also face lower loan rates over time (read: "At Least 3 Rate Cuts" by December? Sector ETFs to Play).
Meanwhile, gold mining stocks will also get a boost, given that these are leveraged plays on the underlying metal. Rate cuts would increase the metal’s attractiveness, pushing the bullion price higher.
Given this, we have highlighted ETFs & stocks from sectors that are expected to skyrocket on lower rates.
Real Estate
Schwab U.S. REIT ETF (SCHH - Free Report) , having AUM of $5.7 billion and average daily trading volume of 725,000 shares, offers broad exposure to the real estate sector. It has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: ETF Strategies to Mark as Covid-19 Flares up Recession Scares).
With market cap of $62.3 billion, Prologis Inc. (PLD - Free Report) is a leading industrial REIT that acquires, develops, operates and manages industrial real estate space in the Americas, Asia and Europe. This Zacks Rank #2 (Buy) stock is expected to record earnings increase of 12.4% this year.
Utilities
Zacks #2 (Buy) Ranked Utilities Select Sector SPDR (XLU - Free Report) provides exposure to companies from the electric utility, gas utility, multi-utility, and independent power producer and energy trader industries. It has amassed $11.2 billion in its asset base and trades in volume of 16.6 million shares per day on average (read: Yields at Record Lows: 4 Sector ETFs to Buy).
Duke Energy Corporation (DUK - Free Report) is a diversified energy company with a wide portfolio of domestic and international, natural gas and electric and regulated and unregulated businesses which supply, deliver and process energy in North America and selected international markets. It is expected to post earnings growth of 1.6% this year. The stock has a Zacks Rank #2 and market cap of $67.3 billion.
Homebuilders
SPDR S&P Homebuilders ETF (XHB - Free Report) provides exposure to the homebuilders segment with a well-diversified exposure across building products, home furnishings, home improvement retail, home furnishing retail and household appliances. It is the most popular option in the homebuilding space with AUM of $734.7 million and average daily volume of 1.8 million shares. The product charges 35 bps in annual fees and has a Zacks ETF Rank #2 (read: Here's Why You Should Buy Homebuilder ETFs Now).
PulteGroup Inc. (PHM - Free Report) is engaged in homebuilding and financial services businesses, primarily in the United States. It is expected to see earnings growth of 18.3% this year and sports a Zacks ETF Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Gold Mining
VanEck Vectors Gold Miners ETF (GDX - Free Report) is the most popular and actively traded gold miner ETF with AUM of $11.7 billion and average daily volume of around 56.6 million shares. Canadian firms account for half of the portfolio, while the United States (18.2%) and Australia (14.3%) round off the top three. The fund charges 52 bps in annual fees.
With a market cap of $20.4 billion, Franco-Nevada Corporation (FNV - Free Report) operates as a gold-focused royalty and stream company with additional interests in silver, platinum group metals, oil & gas and other resource assets. The stock is expected to see earnings growth of 30.7% year over year in 2020 and has a Zacks Rank #2.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>