It has been a great November, with all three major indexes firmly ending in the green over the past three weeks. The optimism has been prompted by expectations that the Federal Reserve is finally done with its interest rate hikes.
However, the upbeat sentiments were dented on Nov 21, following the release of the minutes from the Fed’s Nov 1 policy meeting. Although the Federal Reserve officials acknowledged that the monetary tightening campaign has been successful in bringing down inflation, concerns remain as inflation is still elevated.
Following this, stocks retreated, with all three indexes closing the day in the red. The Dow and the S&P 500 each closed 0.2% lower, while the Nasdaq finished down 0.5%.
Inflation Worries Continue
Fed officials didn’t directly announce more interest rate hikes but said that despite the economy witnessing solid growth in the third quarter, concerns remain. According to the central bank, the labor market has cooled substantially over the past year but remains resilient, which has been posing a challenge to bring inflation down to its target of 2%.
The minutes showed that Fed officials agreed to a cautious approach over the coming months and did not rule out further rate hikes.
Market participants have so long been ignoring the hawkish comments made by Fed officials after their confidence got a boost, following the release of the October jobs report that hinted at a cooling labor market.
The Fed didn’t hike interest rates in the past two policy meetings and kept its benchmark interest rate in the range of 5.25-5.5% after hiking interest rates by 525 points in the past 18 months.
The Fed had earlier said that another 25-basis point rate hike would be required this year. However, the recent developments have made market participants believe that the central bank may be done with its monetary tightening campaign and would refrain from hiking interest rates in its December policy meeting.
However, the Fed remains concerned about the elevated inflation, which may not make markets volatile once again. Moreover, higher interest rates are expected to continue for a longer period as the Federal Reserve earlier revised its future rate cut forecast from four to two.
Investors should thus focus on stocks that offer risk-adjusted returns like CenterPoint Energy, Inc. CNP, Consolidated Edison, Inc .ED, Entergy Corporation ETR, Global Water Resources, Inc. GWRS and NiSource Inc. NI.
These stocks are considered defensive as they belong to the utilities and consumer staples sector which is non-cyclical in nature. This means these businesses are not largely influenced by market fluctuations. Also, these stocks belong to the category of low-beta stocks (beta greater than 0 but less than 1). Hence, the recommended approach is to invest in low-beta stocks with a high dividend yield and a favorable Zacks Rank. Each of the stocks has a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
CenterPoint Energy, Inc. is a domestic energy delivery company that provides electric transmission & distribution, natural gas distribution and competitive natural gas sales and services operations. CNP maintains the wires, poles and electric infrastructure serving more than 2.5 million metered customers in the greater Houston area and in southwestern Indiana.
CenterPoint Energy has an expected earnings growth rate of 8.7% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.7% over the last 60 days. CNP currently has a Zacks Rank #2. CenterPoint Energy has a beta of 0.90 and a current dividend yield of 2.88%.
Consolidated Edison, Inc. is a diversified utility holding company, with subsidiaries engaged in both regulated and unregulated businesses. ED’s regulated businesses operate through its subsidiaries — Consolidated Edison Company of New York, Orange and Rockland Utilities, Con Edison Clean Energy Businesses, Inc. and Con Edison Transmission, Inc.
Consolidated Edisonhas an expected earnings growth rate of 8.6% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.8% over the last 60 days. ED presently has a Zacks Rank #2. Consolidated Edisonhas a beta of 0.38 and a current dividend yield of 3.58%.
Entergy Corporation is primarily engaged in electric power production and retail distribution of power. ETR has 30,000 megawatt (MW) of generating capacity, including more than 8,000 MW of nuclear fuel capacity.
Entergy Corporation has an expected earnings growth rate of 4.8% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.3% over the last 60 days. ETR currently has a Zacks Rank #2. Entergy Corporation has a beta of 0.67 and a current dividend yield of 4.47%.
Global Water Resources, Inc. is a water resource management company. GWRS owns and operates regulated water, wastewater and recycled water utilities.
Global Water Resources has an expected earnings growth rate of 20.8% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 7.4% over the last 60 days. GWRS presently has a Zacks Rank #2. Global Water Resources has a beta of 0.82 and a current dividend yield of 2.58%.
NiSource Inc. together with its subsidiaries, provides natural gas, electricity, and other products and services in the United States. NI’s operating subsidiaries deliver energy to roughly 3.7 million customers in six states — Ohio, Pennsylvania, Virginia, Kentucky, Maryland and Indiana. NiSource has one of the nation’s largest natural gas distribution networks, as measured by a number of customers.
NiSource has an expected earnings growth rate of 8.8% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 1.3% over the last 60 days. NI presently has a Zacks Rank #2. NiSource has a beta of 0.51 and a current dividend yield of 3.82%.
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