U.S. Markets open in 6 hrs 40 mins

Powell Expresses Confidence in US Economy: 5 Top Picks

Swarup Gupta
Given that the Fed Chair has again expressed his confidence in the economy, it makes sense to invest in consumer discretionary stocks

On Nov 14, Fed Chair Jerome Powell expressed fresh optimism about the state of the U.S. economy. In particular, he emphasized the role of the central bank in helping to create the right conditions for economic growth. Since the economy is in good shape, rate hikes can be expected at the end of any policy meeting in 2019, he added.

Powell did acknowledge that the economy could face severe headwinds, especially from abroad next year. However, the Fed Chair hinted that the central bank would be as nimble as possible on base rate increase decisions following incoming data.

Notably, consumer spending contributes nearly two-thirds of the total U.S. GDP. Given that the Fed Chair has once again expressed his confidence in the economy, it makes sense to invest in consumer discretionary stocks at this point.

Powell Emphasizes Fed’s Role in Economic Expansion

On Wednesday, the Fed Chair said that he was “happy about the state of the economy now.”  Powell was speaking at a question and answer session moderated by Dallas Fed President Robert Kaplan. Powell added that the “economy is in such a good place right now” at least partially due to the Fed’s monetary policy measures.

This optimism about the economy is exactly what has driven the Fed to raise rates in a phased manner this year. Three rate increases have already been announced and the fourth is nearly certain in December. Powell did little to quell speculation that further hikes would continue.

In fact, he clearly indicated that rate hikes were more than likely after any of the eight FOMC meetings scheduled for 2018. In the past, the Fed followed the practice of hiking rates only on a quarterly basis. But on Wednesday, Powell said: “Certainly all meetings are live now, there's no question about it now.”

Global Economy Poses Risk, Strong U.S. Economy Holds the Key

Apart from his upbeat comments, Powell expressed concerns about the state of the global economy on two occasions, a development he said was “concerning.” In fact, he thinks that there has been a “gradual chipping away” at the pace of global growth. At the same time, Powell thinks that it is “not a terrible slowdown.”

Additionally, the impact of fiscal stimulus, in the form of tax cuts, is beginning to recede. The effect of the eight rate hikes made since late 2015 is also beginning to catch up with the economy. However, the Fed Chair continues to believe that “our economy can grow and grow faster.”

Of course, the central bank would have to deliberate as to how to go about raising rates, including the pace and extent of such hikes. But at all times, the Fed’s goal will be to increase the duration of the current expansion and “to keep unemployment low and inflation low.” He added: “A strong U.S economy is good for the global economy.”

Our Choices

This is not the first time that the Fed has expressed optimism in the state of the U.S. economy. However, coming as it does in the backdrop of several global headwinds, including slowing growth, it assumes special significance.

With the Fed Chair confident about the economy and the central bank committed to extending the current expansion, consumer discretionary stocks are once again strong bets. This is because personal consumption makes up two-thirds of total GDP. However, picking winning stocks may be difficult.

This is where our VGM Score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM Score. 

We have narrowed down our search to the following stocks, each of which has a Zacks Rank #1 (Strong Buy) and a good VGM Score. You can see the complete list of today’s Zacks #1 Rank stocks here.

Rent-A-Center, Inc. RCII is the largest rent-to-own operator in the U.S. offering durable goods such as consumer electronics, appliances, computers, furniture and accessories.

Rent-A-Center has a VGM Score of A. The company’s projected growth rate for the current year is more than 100%. The Zacks Consensus Estimate for the current year has improved by 12.5% over the last 30 days.

MCBC Holdings, Inc. MCFT is a designer, manufacturer and marketer of sport boats and outboard boats on a global basis.

MCBC Holdings has a VGM Score of A. The company’s expected earnings growth for the current year is 29.1%. The Zacks Consensus Estimate for the current year has improved 4% over the last 30 days.

Hudson Ltd. HUD is a travel retailer, operating primarily in North America.

Hudson has a VGM Score of A. The company’s projected growth rate for the current year is more than 100%. The Zacks Consensus Estimate for the current year has improved 14% over the last 30 days.

Rocky Brands, Inc. RCKY is a leading designer, manufacturer and marketer of premium quality footwear and apparel.

Rocky Brands has a VGM Score of B. The company’s expected earnings growth for the current year is 57.8%. The Zacks Consensus Estimate for the current year has improved 7.7% over the last 30 days.

Hamilton Beach Brands Holding Company HBB, along with its subsidiaries, is a designer, marketer and distributor of branded electric household and specialty housewares appliances, as well as commercial productsfor restaurants, bars and hotels.

Hamilton Beach has a VGM Score of B. The company’s projected growth rate for the current year is 21.2%.

Wall Street’s Next Amazon

Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.

Click for details >>


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
 
Rent-A-Center, Inc. (RCII) : Free Stock Analysis Report
 
MCBC Holdings, Inc. (MCFT) : Free Stock Analysis Report
 
Rocky Brands, Inc. (RCKY) : Free Stock Analysis Report
 
Hamilton Beach Brands Holding Company (HBB) : Free Stock Analysis Report
 
Hudson Ltd. (HUD) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research