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Wall Street is expecting the Federal Reserve to begin shifting gears in September following the Federal Open Market Committee’s (FOMC) decision to leave interest rates unchanged at the current target rate of 5.25% - 5.50%, during its July policy meeting.
With a date set, futures traders are beginning to price in the near-term possibility of the central bank cutting interest rates sooner rather than later. Currently, around 76.5% of traders are expecting the Federal Reserve to cut rates by a quarter-percentage point in their upcoming meeting in late September, according to the CME Group’s FedWatch Tool.
Need to Know News
- Wall Street awaits Fed's decision on interest rates.
- Futures traders are pricing in a possible rate cut for September.
- Several industries could benefit from lower rates.
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Subsequently, around 23.5% of traders believe that the Feds will cut rates by 50 basis points to a target range of 4.75% - 5.00%.
This has been a long-awaited event following an aggressive monetary tightening policy that saw the Federal Reserve raise interest rates 11 times over the last two years in an attempt to tame red-hot inflation .
The move could help bolster demand among consumers, but more than this, corporations that took on high levels of debt during the pandemic could expect to feel some relief. Here are four stocks that could benefit from lower rates.
Ford
U.S. new car sales barely rose in Q2, with sales up 0.1% compared to the same period last year. Despite the slowing activity, Ford ( NYSE: F ) posted strong second-quarter results with the company seeing Ford+ on track to hit profitability this year, and the company raising its cash flow outlook.
More than this, the company posted a 34% increase in Ford Blue hybrid sales, representing close to 9% of Ford’s global vehicle mix. On top of this, the company had a 9% revenue gain, with Ford Pro posting $2.6 billion EBIT after a solid increase in Super Duty Truck and Transit Van sales.
Ford could benefit from the reduced interest rates. For starters, the company holds over $101 billion in long-term debt, while on the back of this, lower rates could bring back more would-be buyers, which could boost Q3 bottom-line performance.
Welltower
Mortgage rates have fallen to their lowest in over eight months on the back of the Fed’s expected rate cuts. This could bring more positive news for the real estate investment trust Welltower ( NYSE: WELL ) which has performed surprisingly well under the current high-interest rate conditions.
Stocks of the company have advanced over 28% since the start of the year, with much of this added during the second half of the year. Second-quarter earnings results show that the company posted a strong improvement in normalized funds from operations which rose 16.7% year-over-year to $1.05 per diluted share.
Portfolio performance has been steadily growing, and Welltower reported same-store net operating income (NOI) growing 11.3%, largely driven by the Seniors Housing Operations NOI portfolio of 21.7%.
Something else that stands out with Welltower is that the company reported a 14.8% improvement in net debt consolidated value, while equity and proceeds from loan repayments had seen a positive turnaround since the end of 2023.
Synchrony Financial
Higher interest rates have partially played in favor of Synchrony Financial ( NYSE: SYF ) following second-quarter results which showed that interest and fees on loans had increased by 10% to $5.43 billion.
This strong improvement was primarily driven by the increase in average loan receivables, while other financials such as net interest income rose to $285 million, or 7%, ending the quarter at $4.4 billion.
Despite the new late rule fee changes introduced in March by the CFPB, Synchrony is looking to protect its bottom line, raising interest rates and adding more fees to offset costs. These additions have ensured the company remains within good financial standing while benefiting from growth in privately owned credit cards and online consumer spending.
JPMorgan Chase
Multinational conglomerate JPMorgan Chase ( NYSE: JPM ) is set to benefit from increased business activity, despite the possibility of lower interest rates affecting the bank's profitability.
The bank is likely to offset losses with a high loss-absorbing capital of more than $534 billion. On top of this, the bank reported a 14% increase in client investment assets fees, while seeing a record first-time investor activity.
Additionally, card loans rose 12%, after the bank added more than 2.4 million customers. This combined with the asset management fees that grew 13%, seeing $79 billion of client asset net inflows has helped the bank keep a strong bottom line balance sheet while already planning for a lower interest rate environment.
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