Today, the FOMC (Federal Open Market Committee) will begin its two-day meeting. After the U.S. posted a sharp drop in Q1 GDP growth and higher core PCE (inflation), stock markets do not expect a cut in interest rates.
A surprise 25 basis point rate hike is more unlikely either. Currently, the Fed Fund’s rate of over 5% benefits savers. Consumers with some savings get more interest income. They may spend the extra income on goods. Investors should anticipate companies with strong brands benefitting the most. PepsiCo (PEP), Coca-Cola (KO), Unilever (UL), and Mondelez (MDLZ) are some of the firms that sell products that consumers want.
Expect those stocks to outperform the broader market.
Avoid Appliance and Automotive Companies
The high interest rate levels increase credit card costs. While Visa (V) and Mastercard (MA) post stronger fee revenue, companies that sell appliances will not do well. Consumers will avoid buying big-ticket items. This hurts Whirlpool (WHR), whose stock recently bounced from a 52-week low.
For now, automotive giants Ford Motor (F) and General Motors (GM) are trading in a steady uptrend after posting good quarterly results. Yet if they need to start cutting prices to reduce inventory at dealerships, profitability will fall.
In EV, beware of Tesla (TSLA). Although the stock gained 36.61% in the last week, the short squeeze will not last. California reported lower Tesla vehicle registrations. Furthermore, Tesla posted weak sales in its quarterly report.