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4 Stocks to Gain From Fed's Not-So-Dovish Stance for 2019

Zacks Equity Research

The Federal Reserve’s decision to hike interest rates for the fourth time this year didn’t go down well with Wall Street. U.S. equity markets closed lower on Dec 19 trading, owing to the Fed’s somewhat hawkish outlook for 2019. The broader S&P 500 index and Dow Jones fell 1.5% and Nasdaq Composite index tumbled 2.2% on Wednesday.

Although the central bank’s December policy was slightly dovish compared to the Fed’s earlier, more aggressive tone, it failed to lift investor sentiment. This is because markets had been hoping that December’s rate hike would be the last for this normalization cycle.

Additionally, the Fed lowered its economic outlook for the next couple of years. Keeping in mind Fed’s outlook for 2019, it would be prudent to invest in safe havens such as consumer staples stocks as these stocks offer decent dividend yields.

Fed’s Accommodative Monetary Policy

The central bank raised its benchmark interest rate from 2.25% to 2.5% on Dec 19, which marks its fourth rate hike in 2018 and ninth since December 2015. However, the Fed lowered its projections for rate hikes from three to two for next year.

The Federal Open Market Committee’s (FOMC) tone in its post-meeting statement was neither dovish nor forgiving. The committee thinks more rate hikes are necessary for 2019 in order to achieve its dual targets of controlling inflation and unemployment.

Per the central bank, “some further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective.”

Central Bank Cuts Economic Outlook

The turbulence in U.S. equity markets and signs of an upcoming global slowdown likely forced the Fed to lower Federal Reserve’s projections for U.S. economic growth on Dec 19. Volatility in financial markets had been the outcome of a broad spectrum of factors such as U.S.-China trade war, Brexit, Italian budget negotiations etc.

The Fed slashed its 2019 estimate for U.S. GDP growth to 2.3%, lower than its September projection of 2.5%. However, the forecast for long-run growth rose from 1.8% to 1.9%. In addition, the Fed also revised its core inflation estimates from 2% to 1.9% in 2019. Although unemployment estimates are the same through next year, the Fed anticipates 2020 unemployment rate to rise from 3.5% to 3.6% and that for 2021 from 3.7% to 3.8%.

4 Stocks to Buy

Given the Fed’s move to raise rates and continue to normalization in 2019, it would be best to invest in safe-haven stocks like consumer staples. We have selected a couple of consumer staples stocks that could be good investment options at present. All the stocks carry a Zacks Rank #1 (Strong Buy) or 2 (Buy).

Scholastic Corporation SCHL publishes and distributes children’s books globally.

The company’s expected earnings growth rate for the current year is 21%. The Zacks Consensus Estimate for the current year has advanced 15.3% over the last 30 days. The stock carries a Zacks Rank #1. The stock has a dividend yield of 1.4%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Archer Daniels Midland Company ADM procures, processes, stores, transports and merchandises agricultural goods.

The company’s expected earnings growth rate for the current year is 46.4%. The Zacks Consensus Estimate for the current year has advanced 0.8% over the last one month. The stock carries a Zacks Rank #2. The stock has a dividend yield of 3.1%.

The Procter & Gamble Company PG offers branded consumer packaged goods. The company’s products range from a wide section of beauty and grooming, home care, health care, baby and feminine segments.

The company’s expected earnings growth rate for the current year is 4.6%. The Zacks Consensus Estimate for the current year has advanced 0.2% over the last 60 days. The stock carries a Zacks Rank #2. The stock has a dividend yield of 3.1%.

Tate & Lyle PLC TATYY offers ingredients to the food, beverage and related industries worldwide.

The company’s Zacks Consensus Estimate for the current year has advanced 1.1% over the last 30 days. The stock carries a Zacks Rank #2. The stock has a dividend yield of 2.4%.

In addition to the stocks discussed above, would you like to know about our 10 top tickers to buy and hold for the entirety of 2019?

These 10 are painstakingly handpicked from over 4,000 companies covered by the Zacks Rank. They are our primary picks poised to outperform in the year ahead. Be among the first to see the new Zacks Top 10 Stocks >>


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Tate & Lyle PLC (TATYY) : Free Stock Analysis Report
 
Scholastic Corporation (SCHL) : Free Stock Analysis Report
 
Procter & Gamble Company (The) (PG) : Free Stock Analysis Report
 
Archer Daniels Midland Company (ADM) : Free Stock Analysis Report
 
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