When the FOMC announced its rate pause policy, stock markets rallied sharply. The Fed skewed to a more dovish, or rate-cutting bias. It continues to forecast cutting interest rates three times in 2024. Bullish readers should exercise caution. That rate cut pace is an expression of nine officials who offered forecasts. Five officials believe two cuts are needed.
The Fed is acutely aware that inflation is sticky (persistent). Companies are starting to have trouble passing input costs to their customers. However, consumer discretionary firms like Coca-Cola (KO) are trading at a premium. Walmart (WMT) and Costco (COST) are holding their value. PepsiCo (PEP), Mondelez (MDLZ), and Unilever (UL) are in a trading range. Expect all of those stocks to offer smooth sailing to its shareholders.
A storm may brew for companies struggling under a high debt load. Telecom stocks like BCE, AT&T (T), and Verizon Communications (VZ) will face margin pressures. High interest rates increase debt servicing costs.
The Fed said that it will “soon” taper its balance sheet run-off. By slowing the run-off of Treasury bills, regional banks will have more room to manage liquidity risks ahead. Watch New York Community Bancorp (NYCB). Investors who want to hold a basket of regional banks may consider SPDR S&P’s KRE exchange-traded fund.
