Fed Rate Cuts to Boost Retail Sector: 4 Stocks With Most Upside
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The retail sector is staging a solid comeback as inflationary pressures ease. The sector struggled for months, crippled by sky-high inflation and higher borrowing costs. The jump in August retail sales proves that the U.S. economy is on solid ground.
The retail sector is expected to get a further boost as the Fed gears up to announce its rate cut today, the first since March 2020. Given this scenario, investing in retail stocks would be a prudent choice.
We have narrowed our search to four retail stocks such as Boot Barn Holdings, Inc. BOOT, JD.com, Inc. JD, Chewy, Inc. CHWY and Abercrombie & Fitch ANF,with strong potential for 2024. These stocks have seen positive earnings estimate revisions in the last 60 days. Each of the 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.
Retail Sales Jump in August
The Commerce Department said on Tuesday that retail sales rose 0.1% in August after rising the most in 18 months in July and beating analysts’ expectations of a decline of 0.2%. In July, retail sales rose 1.1%.
Year over year, retail sales grew 2.1% in August. Online retail sales made a solid rebound, increasing 1.4% in August after declining 0.4% in the previous month.
Sales at stores specializing in sporting goods, hobbies, musical instruments, and books rose by 0.3%. Sales at building material and garden equipment stores increased 0.1%. Miscellaneous retailers’ sales jumped 1.7%.
The latest data indicates that consumers are still spending at an aggressive pace as inflation continues to cool. Also, the average paychecks have risen substantially since the COVID-19 outbreak, which has been helping Americans spend despite the increase in prices of several necessities.
Fed Rate Cut to Boost Retail Stocks
Signs of cooling inflation have convinced the Federal Reserve to finally go ahead with its rate cut plans. The retail sale report came as the Federal Reserve began its two-day policy meeting. The financial community is hopeful that the Fed will go for its first rate cut in more than four years.
Also, the U.S. economy is on solid ground. The U.S. GDP grew 3% in the second quarter after growth slowed to 1.4% in the first quarter. The Atlanta Fed upwardly revised its third-quarter GDP growth estimate to an annual rate of 3% from the earlier projected 2.5% pace after the release of the retail sales data.
Presently, the CME FedWatch tool shows a 63% probability of a 25-basis point cut this week, while a 37% chance of a 50-basis point cut. Even if the Fed goes for a small rate cut, it bodes well for the broader economy. The retail sector is expected to get a boost as lower borrowing costs will allow consumers to spend freely.
