3 Top Stocks to Gain as Interest Rates Are Set to Stay Higher
The recent strength in the U.S. labor market has confirmed that the Federal Reserve will have to do more to curb inflationary pressure. For the week ending Feb 25, Americans filing for jobless benefits dropped to 190,000, less than the 195,000 estimated. New unemployment applications remained below the coveted 200,000 mark for the seventh successive week, indicating sustained resilience in the labor market.
By the way, January’s employment report has already remained astounding all around. In January, jobs added were 517,000, way more than analysts’ forecast of 187,000 job gains. Job additions were already healthy in the latter half of 2022, eventually leading to the unemployment rate declining to 3.4% in January, its lowest level since 1969.
However, signs of strength in the labor market may lead to an uptick in consumer outlays, increasing price pressures, and compelling the Fed to raise interest rates through summer. Anyhow, the prices of indispensable commodities still remain elevated.
The Fed’s preferred inflation gauge, the personal consumption expenditure (PCE) index, increased by 0.6% in January from December’s increase of 0.2%. What’s more, the PCE index jumped 5.4% annually in January from December’s reading of 5.3%, and all the readings came in higher than expected.
Nonetheless, the minutes from the Fed’s latest meeting showed that most of the policymakers want to raise interest rates soon to curb inflationary pressure. Market participants now expect the central bank to raise interest rates by 25 basis points in March in addition to May. This will push the policy rate to 5.36% by mid-summer, and many analysts expect the rate to remain at that level for 2023.
But rate hikes do not necessarily bode well for the broader stock market as it impacts consumer spending habits, increases borrowing costs and hampers economic growth. Still, some stocks tend to gain from a hawkish interest rate environment. Notable among them are stocks from the financial sector, including banks, insurance, and asset management companies.
Banks make more money when interest rates scale upward since the spread between what banks earn by investing and pay to customers increases. Similarly, rising interest rates increase the profit margins of insurance players and wealth management companies.
Thus, we have selected three fundamentally solid stocks from the financial sector that boast a Zacks Rank #1 (Strong Buy) or 2 (Buy). The search was also narrowed down with a VGM Score of A or B. Here V stands for Value, G for Growth, and M for Momentum and the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners. You can see the complete list of today’s Zacks #1 Rank stocks here.
State Street STT primarily performs its business through its principal banking subsidiary, State Street Bank. Currently, State Street has a Zacks Rank #2 and a VGM Score of B.
The Zacks Consensus Estimate for its current-year earnings has moved up 7.4% over the past 60 days. STT’s expected earnings growth rate for the current year is 16.2%. Its shares are estimated to gain 8.9% next year.
Everest Re Group RE writes property and casualty, reinsurance, and insurance in the U.S., Bermuda, and international markets. Presently, Everest Re Group has a Zacks Rank #1 and a VGM Score of A.
The Zacks Consensus Estimate for its current-year earnings has moved up 13.4% over the past 60 days. RE’s expected earnings growth rate for the current year is almost 70%. Its shares are expected to advance 15.7% next year.
AssetMark Financial AMK provides wealth management and technology solutions to financial advisers and their clients. Currently, AssetMark Financial has a Zacks Rank #2 and a VGM Score of B.
The Zacks Consensus Estimate for its current-year earnings has moved up 12.2% over the past 60 days. AMK’s expected earnings growth rate for the current year is 24.3%. Its shares are projected to increase by 6.4% next year.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
State Street Corporation (STT) : Free Stock Analysis Report
Everest Re Group, Ltd. (RE) : Free Stock Analysis Report
AssetMark Financial Holdings, Inc. (AMK) : Free Stock Analysis Report
