Interest Rate Cuts: 5 Consumer Discretionary Stocks to Gain Big

Ritujay Ghosh

Tue, Sep 17, 2024, 8:00 PM4 min read

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The much-awaited Federal Reserve’s September policy meeting begins today, with expectations high among market participants that the central bank will finally start its rate-cut cycle. This will be the first time that the Fed will cut interest rates since March 2020. Investors are expecting at least a 25-basis point rate cut this month.

Given this situation, investing in consumer discretionary stocks such as Crocs, Inc. CROX, Traeger, Inc. COOK, DoubleDown Interactive Co., Ltd. DDI, Royal Caribbean Cruises Ltd. RCL and Mohawk Industries, Inc. MHK would be ideal.

Each of these stocks has a Zacks Rank #1 (Strong Buy) or #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Rate Cut Almost Assured

A softer-than-expected jobs data and a marginal rise in monthly inflation in August crashed hopes of a 50-basis point rate cut by the Federal Reserve in its Sept. 17-18 policy meeting. However, even a small rate cut will be cheered by investors.

The Federal Reserve raised interest rates by 525 basis points since March 2022 in its fight to bring down 40-year-high inflation. Hopes of a rate cut earlier this year were dampened after inflation unexpectedly rose in the first quarter.

The Fed is finally convinced that inflation has started cooling and is on track to reach its 2% target. This has raised hopes of the first rate cut in more than four years. The CME FedWatch tool shows a 100% probability of a 25-basis point cut this week, while a 50% chance of a 50-basis point cut.

Consumer Discretionary Stocks to Get a Boost

Consumer discretionary stocks are considered growth stocks, inversely related to the market interest rate. Lower interest rates tend to boost such stocks by reducing the opportunity cost of holding non-yielding assets like consumer discretionary stocks.

Also, the U.S. economy continues to remain on solid ground. The U.S. economy rebounded in the second quarter, with the GDP growing at an annualized rate of 3% after increasing just 1.4% in the first quarter.

Also, consumer sentiment is high. The Michigan Consumer Sentiment Index’s preliminary reading for September rose to 69 from 67.9 in August, its highest level since May 2024.

4 Consumer Discretionary Stocks to Gain

Crocs, Inc.

Crocs, Inc. is one of the leading footwear brands with a focus on comfort and style. CROX offers a wide variety of footwear products, including sandals, wedges, flips and slides, that cater to people of all ages.

Crocs’ expected earnings growth rate for the current year is 6.8%. The Zacks Consensus Estimate for current-year earnings has improved 1.2% over the past 60 days. CROX presently has a Zacks Rank #2.