Federal Reserve Chair Jerome Powell gave the markets a much-needed boost on Wednesday. Stock markets started Q2 on weakness, worried that the Fed would not deliver on an interest rate cut.
Powell said in a speech at Stanford University that inflation has a bumpy path down to 2%. Markets accepted his vague rate lowering at some point this year. The dovish tone should give tech stocks a lift. Meta Platforms (META), Netflix (NFLX), Broadcom (AVGO), and Micron (MU) should rise further.
Farm equipment firms like Caterpillar (CAT) and Deere (DE) should rally today. Industrials like Trane Technologies (TT), Johnson Controls (JCI), and Masco (MAS) are attractive holdings.
Risks
The rough second-quarter stock market performance may resume in the days ahead. Inflation is at 3.2%, above the 2% target. Fuel and food prices are on the rise again, which the core PCE data does not capture. People notice that past inflation leads to permanently higher prices. Their income may not rise with inflation. New workers who enjoy the rise in minimum wage would only fuel inflation.
Investors may profit from the inflation and wage growth trend by buying strong brands. In the food and restaurant sector, consider Chipotle (CMG), Mondelez (MDLZ), and McDonald’s (MCD). Shares are expensive for a reason: they have strong pricing power.
