To The Moon

On last friday, we saw another set of economic data which has the Fed policymakers getting new confirmation that inflation is continuing to ease, clearing the way for a first interest rate reduction this month as they shift their focus to preventing further cooling in the labor market.

The personal consumption expenditures (PCE) price index rose 2.5% in July from a year earlier, the Commerce Department reported, matching the gain in June. Over the most recent three months, the annualized reading on the Fed's preferred gauge of inflation is well below its 2% goal.

As seen now we are at around 70% for a rate cut in September, so the question now is when? in this article I would like to share which sectors and stocks we might want to look at to take advantage once the rate cut happen.

Relative Rotation Graph (RRG) - Last 6 Weeks Move For XLRE and XLY

If we were to look at the rrg indicator for $Real Estate Select Sector SPDR Fund(XLRE)$ and $Consumer Discretionary Select Sector SPDR Fund(XLY)$ over the last 6 weeks, we could see that XLY is still moving with the improving quadrant but it did touch the edge of leading quadrant, this signal that XLY might have a chance to be in the leading quadrant as we are nearing the rate cut.

As for the XLRE, we are seeing that it has stayed in the leading quadrant since we last heard the indication that rate cut in September is possible though the amount is unknown.

I think the amount is not so important now, as we as investors would need to know which sectors or stocks we can prepare ourselves to take advantage if rate cut happened this month in September.

S&P 500 Consumer Discretionary Sector

The largest holdings in the S&P consumer discretionary sector are Amazon and $Tesla Motors(TSLA)$ , both of which are tech-driven, despite their classification.

However, other heavily weighted sector components, such as Home Depot Inc. (HD), McDonald's Corp. (MCD), Lowe's Cos. Inc. (LOW) and TJX Cos. Inc. (TJX), are more vulnerable to higher rates, which could curb spending. A rate cut could boost consumer spending at those companies, though a recession could put a damper on the party.

One other stock we can consider in the Consumer discretionary sector is $Ford(F)$ with a market value of $40.2 billion and giving a dividend yield of 5.9%.

Ford Motor (F) was one of several automakers that scaled back production of its much-anticipated electric-vehicle (EV) fleet over the last year. This was because the current economics of EVs is a bit more challenging than executives had hoped. For instance, higher borrowing costs are causing headaches for car buyers as well as for carmakers who need to retool factories to accommodate the shift.

Rate would help Ford to manage its more than $100 billion in long-term debt, this would provide them with more incentive and also to investors to look at this stock.

Currently if we look at Ford stock price, it does look like a potential buy for the rate cut bet. I will be monitoring the price action for this stock in today trading.

S&P 500 Real Estate Sector

Following a disappointing July jobs report that led investors to believe the Fed may slash rates further than expected, the real estate sector was one of the few gainers. It joined utilities and consumer staples, both traditionally considered defensive sectors.

The real estate sector could benefit from a rate cut for intuitive reasons: Lower borrowing costs make mortgages more affordable. That could increase demand for commercial and residential properties, boost home sales and increase the profitability of real estate investments.

One of the stock we can look at is $WELLTOWER OP LLC(WELL)$ this is one of many real estate stocks that will benefit from rate cuts. This is because lower interest rates will reduce the borrowing costs for those looking to buy new land or build new facilities. Unlike some of the riskier plays in real estate, however, WELL stock is doing quite well, even under a regime of higher rates.

With a market value of $71.6 billion, its occupancy at its properties is improving while cost pressures are declining. In a recent business update to investors, Welltower increased its dividend payout 10%, and it now boasts a healthy 2.3% yield. What is more WELL also raised guidance for its funds from operations, a key measure of financial health for real estate investment trusts (REITs).

This stock have been up nearly 40% in the last 12 months on a total return basis – outperforming the S&P 500 – and the prospect of lower rates potentially boosting performance in the months ahead, there are clearly reasons to consider this as one of the top stocks to buy for a Fed rate cut.

From the technical, it is also showing a potential upward trend for a long term buy.

Summary

As seen over the last few weeks, we have seen some sectors performed better than the rest and I would think it is time to seriously look at getting into a position to take advantage of the rate cut.

Appreciate if you could share your thoughts in the comment section whether you think XLRE and XLY would be sectors that would benefit the most from the rate cut?

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.