Headline inflation in the United States did tick up slightly in July, but the rise was cooler than expected, and subsequently supported the case for the Federal Reserve to hold interest rate hikes in its next meeting.

This calls for investing in stocks such as Atmos Energy ATO, TopBuild BLD, Axcelis Technologies ACLS and Comstock Inc. LODE that are poised to make the most of the likely pause in interest rate hikes.

US Inflation Remains Moderate

The Bureau of Labor Statistics added that the consumer price index (CPI) increased 3.2% year over year in July from 3% in June. However, the slight uptick in the annual rate of retail inflation was less than analyst expectations of 3.3%. Also, the headline inflation rate more than halved after it touched a 40-year high of 9.1% in mid-2022.

Consumer prices in the United States, meanwhile, rose a mild 0.2% month on month in July, the same increase as in June, signifying no meaningful acceleration in the prices of indispensable commodities.

Most importantly, the core inflation rate that excludes the volatile energy and food prices increased by 0.2% month on month, matching June’s increase. To top it, the core inflation on a yearly basis increased by 4.7% in July, slower than June’s pace, and it’s also the lowest level since October 2021.

Gasoline, rent, and house prices may have gone up last month, but medical-care costs, airfares, and prices of used vehicles declined. Overall, inflation had already slowed down considerably in the first half of this year.

Inflation Data Boosts Case for No Future Rate Hikes

The benign set of inflation reports has certainly added to the hopefulness that the rate hike cycle of the Fed is coming to an end and that a soft landing is surely attainable for the U.S. economy.

In the last couple of years, the Fed has hiked interest rates from near zero levels to 5.25-5.5%, a 22-year high. But July’s smaller-than-expected rise in inflation has boosted the case for the Fed to pause interest rate increases in its next meeting to be held in September.

The CME FedWatch Tool at the moment shows that 89% of market participants assume that the Fed may not increase interest rates in September, as it was done in June.

Stocks That Gain From a Rate Hike Pause

Utility companies, being capital-intensive in nature, need a lot of funds that are fulfilled by external sources as well. Thus, these companies have high levels of debt. So, a low-interest environment decreases their debt level and helps them pay off such liabilities and book profits.

Higher interest rates, by the way, increase the borrowing costs of projects, and, in the process, impact construction businesses. Thus, a rate hike pause acts as a blessing in disguise for real estate activities.

Similarly, tech stocks’ future cash inflows get hampered if interest rate increases. Their cost of borrowing also escalates, which eventually impacts profit margins. Thus, the chances of no rate hike certainly bode well for them.

Meanwhile, lower interest rates dampen the demand for bonds and other fixed-income investments. Investors, thus, may take money out of bonds and place them in gold, thereby increasing the chances of gold mining companies gaining.

4 Solid Picks

We have, therefore, highlighted four stocks from the aforesaid areas that should make noteworthy additions to your portfolio. These stocks carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.

Atmos Energy is engaged in the regulated natural gas distribution and storage business. ATO presently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has moved up 0.7% over the past 60 days. The company’s expected earnings growth rate for the current year is 8.2%.

TopBuild is an installer and distributor of insulation and other building products to the U.S. construction industry. BLD currently sports a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has moved up 11% over the past 60 days. The company’s expected earnings growth rate for the current year is 4.6%.

Axcelis Technologies is a leading producer of ion implantation equipment used in the fabrication of semiconductors. ACLS currently has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has moved up 7.2% over the past 60 days. The company’s expected earnings growth rate for the current year is 28%.

Comstock is a North American precious metals mining company, focusing on Nevada. LODE has a Zacks Rank #2 at present. The Zacks Consensus Estimate for its current-year earnings has moved up 50% over the past 60 days. The company’s expected earnings growth rate for the current year is 106.5%.
Atmos Energy Corporation (ATO): Free Stock Analysis Report

Axcelis Technologies, Inc. (ACLS): Free Stock Analysis Report

TopBuild Corp. (BLD): Free Stock Analysis Report

Comstock Inc. (LODE): Free Stock Analysis Report

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