Stocks to Buy as Fed Cuts Rates: Experts' Picks

Overview of S&P 500 Performance and Fed Rate Cuts

Despite the Federal Reserve raising interest rates 11 times from March 2022 through July 2023, the S&P 500 stock index has gained 30% since March 1, 2022. This gain surpasses the average of the past 40 years, highlighting the resilience of the economy and the stock market.

The Fed's rate cuts aim to enable a soft landing, slowing inflation without causing a recession.

In 12 out of 14 previous rate-cutting campaigns since 1929, the S&P 500 posted positive returns 12 months after the initial cuts, except during the 2001 and 2007 recessions.

The key determinant of market performance after rate cuts has been whether the economy avoided recession.

Impact of Rate Cuts on Stock Sectors in the S&P 500

Rate cuts affect different stock sectors in the S&P 500 differently:

Defensive sectors like healthcare and utilities tend to perform well when rates are rising.

Cyclical sectors like consumer discretionary and industrials have greater potential when rates drop, benefiting from an accelerating economy.

Based on analysis from Ned Davis Research, cyclicals have often done best when the Fed enters a period of gradual rate decreases, as is expected in this cycle.

Expert Stock Picks for the S&P 500 After Rate Cuts

Several experts and firms have published lists of stocks in the S&P 500 that could benefit from rate cuts, including:

Jefferies recommends stocks like Alphabet (GOOGL), Crocs (CROX), JPMorgan Chase (JPM), Marathon Oil (MRO), and Owens-Corning (OC).

Barron's suggests stocks like Dayforce (DAY), IBM (IBM), Oracle (ORCL), TotalEnergies (TTE), and Walmart (WMT).

Morningstar listed stocks like Crown Castle (CCI), Realty Income (O), WEC Energy (WEC), Entergy (ETR), and U.S. Bancorp (USB) before the rate cuts began.

Value, Yield, and Cyclical Stocks in the S&P 500

Jefferies' global head of quantitative strategy, Desh Peramunetilleke, suggests that value, yield (dividend stocks), autos, energy, telecom, and banks could work well in case of a soft landing.

Value and dividend stocks in the S&P 500 are expected to perform well after rate cuts.

Cyclical sectors like consumer discretionary and industrials in the S&P 500 are also expected to benefit from an accelerating economy.

Fund Manager Buys and Sells in the S&P 500

Several prominent fund managers have been actively buying and selling stocks in the S&P 500:

Cathie Wood's ARK Invest snatched $8 million worth of a battered tech stock.

A top value fund manager considers Alphabet (GOOGL) a deep-value stock.

Morgan Stanley revealed top stock picks in the S&P 500, including Nvidia (NVDA).

Economic Outlook and Stock Performance in the S&P 500

The performance of stocks in the S&P 500 in the coming months will likely depend on the state of the economy:

If the Fed achieves a soft landing and avoids a recession, stocks in the S&P 500 are expected to perform well after rate cuts.

However, if the economy falls into a recession, the historical performance of the S&P 500 after rate cuts has been negative, as seen in 2001 and 2007.