The Federal Reserve lowered interest rate by a quarter basis points in its two-day FOMC meeting that concluded on Sep 18, amid muted inflation pressure and geopolitical tension like attacks on Saudi Arabia's oil facilities. The rate now stands in the range of 1.75-2%. This marks the second rate cut this year after a 25 basis point cut in July. New projections indicate that the Fed might lower rates again. In fact St. Louis Fed President James Bullard expected a 50 basis points rate cut while Boston Fed President Eric Rosengren and Kansas City Fed President Esther George preferred the rate to remain unchanged in the range of 2-2.25%.
Per reports, seven Fed members expect another rate cut in 2019 while five members believe the rate should remain in the range of 2% to 2.25% by year end.
Major indexes, namely S&P 500 and Dow Jones Industrial Average, gained in yesterday’s trading session while Nasdaq and the benchmark 10-year U.S. Treasury yield declined.
Fed officials expect 2019 interest rate at 1.9%, down from its June projection of 2.4%. For 2020, the rate is expected to remain at 1.9%, a decline from the June projection of 2.1%. For 2021, the rate is now projected to be 2.1%, down from 2.4%. Interest rate in projected at 2.4% in 2020. The same should be 2.5% over the long haul, unchanged from the June projection.
The Fed also provided an updated view on unemployment. Fed officials expect the unemployment rate at 3.7% for 2019, up from 3.6% expected at its June meeting. For 2020 and 2021, unemployment rate remains unchanged at 3.7% and 3.8%, respectively. Over the longer term, unemployment rate is estimated to be 4.2%.
A spurt in employment shows average increase of 0.17 million in jobs over the past three months. However, per U.S. Bureau of Labor Statistics, unemployment rate was 3.7% in August, for the third month in a row. Fed noted “the labor market remains strong and that economic activity has been rising at a moderate rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low”.
With respect to GDP, Fed expects the same to increase to 2.2% in 2019 and 1.9% in 2021 from its earlier projection of 2.1% and 1.8% respectively. However, for 2020 and the long term, GDP is expected to remain unchanged at 2% and 1.9%, respectively. Fed stated “although household spending has been rising at a strong pace, business fixed investment and exports have weakened.”
Inflation is expected to be about 1.8% in 2019, 1.9% in 2020 and 2% in 2021 as well as 2022.
Meanwhile, insurers, who are major beneficiaries of a rising rate environment because of their sensitivity to interest rates, stand strong amid uncertainties, given their strong fundamentals. Strong capital level, a not-so-active catastrophe environment, stringent underwriting standards, better pricing, improved product and services and increased adoption of technologies are positives. Year to date, the insurance industry has rallied 10.8%.
3 Best Insurance Stocks in the Current Scenario
Amid such a macro backdrop, investors may like to add stocks with strong fundamentals and potential to generate better yields.
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Santa Ana, CA -based First American Financial FAF provides financial services. The stock has a Value Score of A and a Growth Score of B. It carries a Zacks Rank # 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here..
Its shares have rallied 29.8% year to date, outperforming the industry’s increase.
New York, NY -based Assurant AIZ provides risk management solutions for housing and lifestyle markets in North America, Latin America, Europe, and the Asia Pacific. The stock has a Value Score of B and a Growth Score of B. It carries a Zacks Rank #2.
Shares have rallied 42.6% year to date, outperforming the industry’s increase.
New York, NY -based National General Holdings NGHC provides various insurance products and services in the United States, Bermuda, Luxembourg, and Sweden. The stock has a Value Score of A and a Growth Score of B. It carries a Zacks Rank # 2.
Its shares have gained 0.8% year to date underperforming the industry’s increase.
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