All eyes have been on the Federal Reserve for the past month as rumors of rate cuts have been flying around. Chair of the Board Jerome Powell said, "The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks." The rumors come ahead of their September 17-18 meeting where many expect those cuts to take place.
The purpose of rate cuts is to prevent a recession by boosting employment and the economy as a whole. Lowering interest rates reduces the cost of borrowing, this makes it cheaper to finance purchases like homes and cars or invest in business expansions like operations and hiring, it also lowers interest payments on loans and mortgages, giving consumers more disposable income to spend.
If these cuts end up happening financial advisors will likely change investment strategies to more equity-based portfolios. Stock market portfolio can be stimulated by rate cuts due to the disposable income it can give many investors. Equities in the Consumer Discretionary sector are expected to benefit from rate cuts because they can boost spending on non-essential goods and services. Examples of Consumer Discretionary stocks include Amazon, McDonalds, and Home Depot. The other sector that can benefit from rate cuts is Utilities due to its high dividend yield. Examples of Utilities are NextEra Energy, National Grid, and Duke Energy.
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