Stocks have been on a rally ever since the June inflation data showed signs of cooling. This saw the Dow and the S&P 500 closing higher for the second consecutive week. Although the Fed is likely to go for another interest rate hike this week, optimism has gripped markets that it could likely be the last of the hikes before the Fed ends its monetary tightening cycle.
Both the consumer price index (CPI) and producer price index (PPI) declined in June. CPI increased 3% year over year in June after rising 4% in May, its lowest level since March 2021. Month over month, CPI rose just 0.2% in June.
Core CPI, which strips out the volatile energy and food prices, also rose a modest 0.2% in June, while on a year-over-year basis, it rose 4.8%, its smallest increase in nearly two years. PPI increased 0.2% in June.
Food prices rose in June, but the situation is far better than the year-ago period. Inflation cooled to 4.8% in June after hitting a 40-year high of 9.1% in 2022.
The Fed has increased interest rates by 500 basis points since March 2022. The central bank finally left interest rates unchanged in its June meeting but said that two more interest rate hikes of 25 basis points would be needed by the end of this year.
This has somewhat raised concerns about the economy slowing further. However, the impressive inflation data has now raised hopes that the Fed might end its monetary tightening policy after a 25-basis point hike in its upcoming July FOMC meeting.
Slowing inflation has also seen consumer confidence making a solid jump in June. Consumer confidence climbed to 109.7 in June from May’s reading of 102.5, to hit the highest level since January 2022.
Moreover, the Present Situation Index, which indicates consumers’ assessment of the present labor market and business conditions, rose to 155.3 in June from 148.9 in May.
Higher interest rates can affect consumer spending patterns, raise borrowing costs and slow economic growth. These would weigh on the stock market performance.
Companies in the consumer discretionary sector are expected to benefit from cooling inflation and a pause in interest rate hikes because consumers will likely have more discretionary income, which can be used for non-essential purchases.
Our Choices
Thus, from an investment perspective, we have identified four stocks from the consumer discretionary sector that are likely to capitalize on reduced inflationary pressure. Each of these stocks carries a Zacks Rank #1 (Strong Buy) or 2 (Buy).
Royal Caribbean Cruises Ltd. RCL is a cruise company that owns and operates three global brands — Royal Caribbean International, Celebrity Cruises and Azamara Club Cruises. Additionally, RCL has a 50% investment in a joint venture with TUI AG, which operates the brand TUI Cruises.
Royal Caribbean Cruises’ expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 46.4% over the past 90 days. RCL presently carries a Zacks Rank #2.
Norwegian Cruise Line Holdings Ltd. NCLH is a leading cruise line operator. NCLH owns and operates three brands — Oceania Cruises, Regent Seven Seas Cruises and Norwegian Cruise Line.
Norwegian Cruise Line Holdings’ expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 14.1% over the past 90 days. NCLH presently carries a Zacks Rank #2.
Acushnet Holdings Corp. GOLF designs, develops, manufactures and distributes golf products. GOLF’s operating segment consists of Titleist Golf Balls, Titleist Golf Clubs, Titleist Golf Gear and FootJoy Golf Wear.
Acushnet Holdings’ expected earnings growth rate for the current year is 6.9%. The Zacks Consensus Estimate for current-year earnings has improved 3.2% over the past 90 days. GOLF presently carries a Zacks Rank #2.
Lifetime Brands, Inc. LCUT is a leading designer, marketer and distributor of kitchenware, cutlery & cutting boards, bakeware & cookware, pantry ware & spices, tabletop and bath accessories. LCUT markets its products under various trade names, including Farberware, KitchenAid, Pfaltzgraff, Cuisinart, Hoffritz, Sabatier, Nautica, DBK-Daniel Boulud Kitchen, Joseph Abboud Environments, Roshco, Baker’s Advantage, Kamenstein, CasaModa, Kathy Ireland and USE.
Lifetime Brands’ expected earnings growth rate for the current year is 93.6%. The Zacks Consensus Estimate for current-year earnings has improved 9.1% over the past 90 days. LCUT presently sports a Zacks Rank #1.
Royal Caribbean Cruises Ltd. (RCL): Free Stock Analysis Report
Acushnet (GOLF): Free Stock Analysis Report
Norwegian Cruise Line Holdings Ltd. (NCLH): Free Stock Analysis Report
Lifetime Brands, Inc. (LCUT): Free Stock Analysis Report
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