Stocks declined on Sep 20 as the Federal Reserve hinted at another quarter-percentage-point rate hike this year. Also, the Fed cut its forecast for rate cuts from four to two in 2024. This raised concerns that higher interest rates will create pressure on the economy.

However, the Fed, as expected, kept interest rates unchanged in its September meeting, keeping its benchmark interest rates in the range of 5.25-5.5%, which is definitely a good sign as borrowing costs, despite being high, remain intact for some time.

This will give consumers more freedom to spend freely as demand for goods and services continues to be high despite price pressures. Given this situation, investing in consumer discretionary stocks like Live Nation Entertainment, Inc. LYV, Royal Caribbean Cruises Ltd. RCL, OneSpaWorld Holdings Limited OSW, Hilton Grand Vacations HGV and InterContinental Hotels Group PLC IHG will be a wise decision.

Fed Keeps Interest Rates Unchanged

Although the Fed hinted at more interest rate hikes, it is likely that there will be only one more hike before the Federal Open Market Committee ends its current monetary tightening cycle. Moreover, investors unsure about when the Fed will start its rate cut also do not have a clear picture.

While many had expected that the first interest rate cut would not come before 2025, the Federal Reserve said at the end of its September policy meeting that it plans to have at least two rate cuts in 2024.

Although this will keep the benchmark rate above the 5% mark, the economy will likely be under less pressure as it will mark the beginning of lower borrowing costs.

The Fed’s decision to keep interest rates unchanged was expected. The Fed has hiked interest rates on 11 occasions since March 2022 by 525 basis points in its bid to curb inflation.

Inflation has sharply declined over the past year, more than halving from its peak of 9.1% in June 2022. Although consumer price and wholesale inflation increased marginally in August, it was primarily because of a surge in oil prices.

Declining inflation definitely bodes well for the economy. Moreover, the retail sector has shown resilience over the months despite inflationary pressures as demand for goods and services remains high, with consumers not hesitant about spending more. Also, the holiday season is approaching, which typically sees a surge in retail sales and travel.

Given this situation, investing in consumer discretionary stocks will be a prudent choice. The Consumer Discretionary Select Sector SPDR Fund (XLY) has gained 29.4% year to date.

Our Choices

From an investment perspective, we have identified four stocks from the consumer discretionary sector that are likely to gain from the pause in interest rate hikes. Each of these stocks carries a Zacks Rank #1 (Strong Buy) or 2 (Buy).

Live Nation Entertainment, Inc. operates as a live entertainment company. LYV operates through the Concerts, Ticketing, and Sponsorship and Advertising segments. Live Nation Entertainment has more than 580 million fans across all its concerts and ticketing platforms in 46 countries. LYV owns, operates and has exclusive booking rights for or an equity interest in 289 venues.

Live Nation Entertainment’s expected earnings growth for the current year is 57.8%. The Zacks Consensus Estimate for current-year earnings has improved 274% over the past 60 days. LYV currently sports a Zacks Rank #1.

Royal Caribbean Cruises Ltd. 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’ cruise brands primarily serve the contemporary, premium and deluxe segments of the cruise vacation industry, which includes the budget and luxury segments.

Royal Caribbean Cruises’ expected earnings growth rate for the current year is 182.1%. The Zacks Consensus Estimate for current-year earnings has improved 30% over the past 60 days. RCL currently sports a Zacks Rank #1.

OneSpaWorld Holdings Limited is a provider and innovator in the fields of wellness, beauty, rejuvenation and transformation on cruise ships and land. OSW’s service includes traditional and alternative massage, body and skincare treatment options, ayurvedic treatments, comprehensive hair and nail services, fitness, acupuncture, herbal medicine, pain management and medi-spa.

OneSpaWorld Holdings’ expected earnings growth rate for the current year is 117.9%. The Zacks Consensus Estimate for current-year earnings has improved 15.1% over the past 60 days. OSW presently carries a Zacks Rank #2.

Hilton Grand Vacations is engaged in the hospitality business. HGV markets and operates vacation ownership resorts. Hilton Grand Vacationsalso manages and serves club membership programs, which include Hilton Grand Vacations Club and The Hilton Club.

Hilton Grand Vacations’ expected earnings growth rate for the current year is 23.7%. The Zacks Consensus Estimate for current-year earnings has improved 3.4% over the past 60 days. HGV currently carries a Zacks Rank #2.

InterContinental Hotels Group PLC offers information and reservations capability on the Internet for InterContinental Hotels & Resorts, Crowne Plaza Hotels & Resorts, Holiday Inn hotels, Holiday Inn Express hotels, and Staybridge Suites by Holiday Inn hotels. IHG owns, manages, franchises and leases hotels across all continents.

InterContinental Hotels Group’s expected earnings growth rate for the current year is 29.8%. The Zacks Consensus Estimate for current-year earnings has improved 8.3% over the past 60 days. IHG has a Zacks Rank #2.
Intercontinental Hotels Group (IHG): Free Stock Analysis Report

Royal Caribbean Cruises Ltd. (RCL): Free Stock Analysis Report

Live Nation Entertainment, Inc. (LYV): Free Stock Analysis Report

Hilton Grand Vacations Inc. (HGV): Free Stock Analysis Report

OneSpaWorld Holdings Limited (OSW): Free Stock Analysis Report

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