To The Moon

The robust surge in the U.S. economy may halt expectations of a rate cut!

The U.S. Gross Domestic Product (GDP) grew at an annualized rate of 3.3% in the fourth quarter, and the core inflation rate, upon which the Federal Reserve relies most, is currently at 2.9%, the lowest level since March 2021. As of now, the probability of a rate cut in March is approximately 50%, according to the interest rate market.

CNBC Daily Open: Fed rate cut path in sharp focus

David Wilcox, an economist at Bloomberg Economics, remarked, "If I were in his shoes, I'd try to dodge the press conference and keep things basically undisturbed. The likelihood of a rate cut in March is 50%... seems good to me. Any action by the Fed depends on specific data.

Matthew Luzzetti, Chief U.S. Economist at Deutsche Bank, indicated that the Federal Reserve might pave the way for the first rate cut in this cycle by removing language in the statement implying the next move would be a rate hike.

"When will the interest rate cut happen?

Michael Gapen, Chief U.S. Economist at BofA Securities, anticipates that the U.S. will cut interest rates four times starting from March, with each cut being 25 basis points. "We are in the early but incremental rate-cutting camp. The Fed will pause its rate-cutting actions when rates reach 3%."

Matthew Luzzetti from Deutsche Bank states that he expects the Federal Reserve to wait until June to begin cutting rates, reducing rates by 175 basis points for the remainder of the year. This prediction is based on his forecast of a mild recession.

Carl Riccadonna, Chief U.S. Economist at BNP Paribas, believes that the Fed will delay rate cuts until May, with the risk of further delays."

It is almost certain that Powell and other voting members of the Federal Open Market Committee (FOMC) will keep the benchmark interest rate unchanged in this Wednesday's monetary policy vote—maintaining rates at the elevated range of 5.25% to 5.5%.

US Treasury Cuts Q1 Borrowing Estimates

In such a high-interest-rate environment, which industries are likely to continue benefiting?

In 2024, the global financial landscape is expected to continue being influenced by high-interest rates, triggering profound economic effects across various industries.

Here are some industries likely to benefit in this economic environment, along with strategies investors may consider:

Disclaimer: The information provided here is for educational and informational purposes only and does not constitute financial advice, investment recommendation, or an offer to buy or sell any securities.

1. Financial Services:

   • The financial sector includes banks, investment firms, insurance companies, etc., which typically experience profit growth in high-interest rate environments. Higher interest rates can boost the net interest margin of banks and financial institutions, driving their profitability.

   • Investors may focus on companies that can adapt flexibly to interest rate changes and provide stable income through diversified financial products and services. Stocks to watch: $Visa(V)$ $JPMorgan Chase(JPM)$ $MasterCard(MA)$

2. Energy:

   • The energy industry may face challenges of rising capital costs during high-interest rate periods, especially for companies heavily reliant on debt for operations or expansion.

   • However, due to the nature of energy products, this industry can still maintain relatively stable demand in high-interest rate environments. Investors may be interested in companies that can effectively manage costs, have diversified resources, and focus on renewable energy.

   • Stocks to watch: $Exxon Mobil(XOM)$ , $Chevron(CVX)$ $Brookfield Renewable Partners LP(BEP)$ $NextEra(NEE)$

3. Healthcare:

   • The healthcare industry is often considered a defensive investment as its services are deemed essential. In high-interest rate environments, healthcare demand tends to remain relatively stable, especially in areas such as pharmaceuticals, biotechnology, and medical device manufacturing.

   • Investors may be interested in healthcare companies with solid financial foundations, diversified product lines, and strong research and development capabilities. Stocks to watch: $Eli Lilly(LLY)$ $Novo-Nordisk A/S(NVO)$ $Johnson & Johnson(JNJ)$

4. Utilities:

   • Utility companies are generally seen as stable investment choices because they provide essential services such as electricity, natural gas, and water. During high-interest rate periods, these companies may face challenges of rising borrowing costs, but due to the essential nature of their services, demand for utilities remains relatively unchanged even during economic fluctuations.

   • Investors may be interested in utility companies actively engaged in renewable energy projects and adopting innovative strategies. Stocks to watch: $Delek US(DK)$ $Southern(SO)$ $Dominion Resources(D)$

Strategic Considerations for Investors:

a. Strong Balance Sheet Companies:

• Investing in companies with healthy balance sheets is particularly important. These companies can better withstand the financial pressure of high-interest rates, having lower debt levels and robust asset positions.

b. Diversified Investment Strategy:

• Diversification is a fundamental strategy for risk reduction. Investors should consider diversifying investments across different asset classes, industries, and geographical regions to mitigate the impact of poor performance in a single investment on the overall portfolio.

c. Monitor Economic Indicators:

• Keeping a close eye on various economic indicators such as inflation rates, GDP growth, unemployment rates, and changes in interest rates can help investors better understand economic trends and adjust their investment portfolios accordingly.

d. Long-Term Investment Perspective:

• A long-term investment horizon helps mitigate the impact of short-term market fluctuations. Choosing assets with strong fundamentals and potential for appreciation over time adapts to economic fluctuations as time progresses.

In conclusion, investors need to maintain flexibility and keen market insights to adapt to the continually changing economic environment. Monitoring the performance of different industries and adjusting investment strategies in a timely manner will contribute to success in the challenging investment landscape of 2024.