As the countdown for the debut Fed meeting of chairman Jerome Powell, all investors started pondering over a 25-bp rate hike this week. This is especially true given Powell’s relatively bullish outlook on the U.S. economy. He also noted in his first Congressional testimony that the central bank is on its course to raise rates gradually.
Needless to say, many asset managers beefed up their expectations for the Fed rate hike to four times this year from three penciled by the Fed policymakers. Although recently released tepid wage growth, muted inflation and soft retail sales caused the heightened fears of faster rate hikes to dampen lately, some market watchers still believe that this is not expected to keep the Fed from hiking the funds rate by another 25 bps to 1.50-1.75% on Wednesday.
Policymakers including Powell and governor Lael Brainard showed more confidence in inflation heading to the 2% goal. The U.S. economist at JPMorgan Chase also expects core inflation of 1.9% by March.
The CME Federal Reserve watch tool now forecasts about 28% chances for four interest rate hikes this year from the Fed, up from 13% noticed a month before. Per analysts, the market has already priced in more than three hikes for 2018. The yield on the two-year Treasury note hit a nine-year high. Notably, the two-year bond yield is mainly the representative of the Fed policy.
On the other hand, the 10-year benchmark U.S. treasury yield moved up to 2.85% on Mar 16, from 2.82% from the day before. All these point toward higher chances of a rate hike this month.
Stocks to Buy Ahead of Jerome Powell’s Debut Fed Meet: First Financial Bancorp (FFBC)
Since banks perform well in a rising rate environment, investors can bank on this stock.
First Financial Bancorp (NASDAQ:FFBC) is a financial holding company that is into the business of commercial banking. The stock has a Zacks Rank #1 (Strong Buy) and hails from a top-ranked Zacks industry (top 28%).
Stocks to Buy Ahead of Jerome Powell’s Debut Fed Meet: Guess?, Inc. (GES)
In a rising rate environment, cyclical sectors like consumer discretionary or retail tend to do better. Plus, the above-mentioned stock yields about 6.04% annually. The high dividend would help investors to earn more regular current income in a rising rate environment. Even if there is any capital loss, high dividend will make up to some extent.
Guess?, Inc. (NYSE:GES), a Zacks Rank #2 (Buy) company, designs, markets and licenses one of the world’s leading lifestyle collections of contemporary apparel and accessories. It belongs to a top-ranked Zacks industry (top 38%).
Stocks to Buy Ahead of Jerome Powell’s Debut Fed Meet: Advanced Emissions Solutions, Inc. (ADES)
Investors should note that small-cap stocks are likely to do better in a rising rate environment since these are tied more to domestic activities and thus do not get hurt in a rising dollar environment (which is a likely outcome if interest rates rise).
Zacks Rank #1 company, Advanced Emissions Solutions, Inc. (NASDAQ:ADES) has a market cap of $227.87 million. It develops, and implements environmental technologies, equipment and specialty chemicals that enable coal-fueled power plants to meet emissions regulations. The stock comes from a top-ranked Zacks industry (top 28%).
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