Investors, in recent times, have been worried about inflation. This is because the U.S. economy has started to recoup from the coronavirus onslaught last year. Now, as coronavirus-led restrictions wane, consumer outlays is rising on improved household income, increased home sales and higher demand for manufactured goods. Service side activity, in the meantime, continues to expand, a tell-tale sign that the economy is getting its mojo back!
Of course, if the economy improves, prices of essential goods increase, leading to a higher rate of inflation. And this development certainly doesn’t bode well for consumers. What’s more, investors fear that it may lead to the Fed implementing a tighter monetary policy. Lest we forget, an easy monetary policy has helped the economy along with the stock market.
Meanwhile, the Fed continues to be dovish. The central bank recently confirmed that it does not intend to raise interest rates any time soon. Fed Chair Jerome Powell and other Fed officials mentioned that they are willing to maintain near-zero interest rates in any case through 2023. Notably, the Fed remained dovish despite signs of economic improvement and mounting inflation concerns.
The Fed, itself, said that the U.S. economy is expected to expand 6.5% this year, as quoted from an investors.com article. The central bank believes that progress in vaccination and further government aids will boost the economy. Moreover, the article stated that the Fed actually expects the inflation rate to hit 2.2% this year and cool down to 2% next year. Thus, the Fed confirmed that the slight bump in inflation should be brief and that the central bank is expected to stick to its accommodative stance.
With the Fed taming inflation fears, the stock market has only one way to go -- upward. And that’s exactly what happened yesterday as U.S. stocks finished at record highs and the Dow, in particular, surpassed the coveted 33,000 mark for the first time ever.
However, from an investment standpoint, it’s imperative to watch out for stocks that are direct beneficiaries of low interest rates. Primary among them are rate-sensitive utility stocks. These capital-intensive businesses have high levels of debt. A low-interest rate environment helps them pay off such debts easily and book profits. Also, if they can pay off their debts, their credit ratings will improve, which should help them borrow more funds from the markets at a cheaper rate.
Like utilities, gold mining stocks have a fair chance to gain in a low-interest environment. This is because low rates make bonds and other various types of fixed-income investments less attractive. Also, gold prices are scaling north on dovish expectations.
Thus, it’s imperative for investors to keep an eye on stocks from the aforesaid areas that are poised to gain the most on a dovish Fed. Here’re five of them –
South Jersey Industries, Inc. SJI is an energy services holding company based in Folsom, NJ. It delivers energy solutions to customers through three primary subsidiaries. The company currently has a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for its current-year earnings has moved up 1.8% over the past 60 days. The company’s expected earnings growth rate for the next quarter is a staggering 500%. You can see the complete list of today’s Zacks #1 Rank stocks here.
California Water Service Group CWT is a publicly-traded water utility in the United States, providing high-quality utility services to millions of people in communities. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has risen 3.5% over the past 60 days. The company’s expected earnings growth rate for the current and next quarter is 100% and 300%, respectively.
Atmos Energy Corporation ATO is engaged in regulated natural gas distribution and storage business. The company currently has a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for its current-year earnings has climbed 0.2% over the past 60 days. The company’s expected earnings growth rate for the current and next year is 6.6% and 7.2%, respectively.
Newmont Corporation NEM is one of the world’s largest producers of gold, with several active mines in Nevada, Peru, Australia and Ghana. Newmont’s operating segments are North America, South America, Australia and Africa. The North America segment has operations in the United States. The company currently has a Zacks Rank #3. The Zacks Consensus Estimate for its next-year earnings has risen 0.8% over the past 30 days. The company’s expected earnings growth rate for the current and next quarter is 142.5% and 209.4%, respectively.
FrancoNevada Corporation FNV operates as a gold-focused royalty and stream company. The company generates around 86% of revenues from the Americas (Latin America 49%, the United States 18% and Canada 19%) and 14% from the rest of the world. The company currently has a Zacks Rank #3. The Zacks Consensus Estimate for its current-year earnings has moved nearly 4% north over the past 60 days. The company’s expected earnings growth rate for the current quarter and year is 32.8% and 15.5%, respectively.
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