A majority of economists now expect the U.S. Federal Reserve to cut interest rates by 25 basis points in each of the remaining three meetings of 2024. In fact, betting markets have been fluctuating between expectations of 75bps of cuts and 100bps of cuts (implying one 50bps move), depending on how future data roll in, and whether these data support the thesis that deeper rate cuts are needed to provide the soft landing everyone’s after. 

As it currently stands, I’m in the 100 basis points camp, though I’m fully aware that the markets have gotten rate cut expectations completely wrong for most of this year (at the beginning of the year, 150bps of cuts were initially priced into the market, which was wildly incorrect).

But if the Fed does cut rates as expected, investors may start thinking about how to reposition their portfolios to best take advantage of these trends. Here are three stocks I think provide some of the best upside to future rate cuts, if they do materialize.

Key Points About This Article:

• Betting markets are increasingly pricing in the probability of 100 basis points of cuts this year, which would imply one 50bps move before year end.
• If the Federal Reserve does cut rates as expected, here are three stocks that could go absolutely bonkers, especially on deeper-than-expected cuts.
• If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.

JPMorgan Chase (JPM)

JPMorgan Chase (NYSE:JPM) has excelled in the first half of 2024, positing a robust second quarter, with 20% revenue growth and EPS numbers that easily surpassed analyst expectations. The company saw investment banking fees soar 46%, a key driver many were questioning heading into the report. Unlike many of its peers, JPMorgan also saw strong net interest income growth, and posted a very impressive 23% return on equity metric, which propelled its stock to a new all-time high. 

JPMorgan’s net interest income differential could get a big boost from a steepening of the yield curve. And as one of the largest U.S. banks, the status of JPM stock as among the most defensive in this sector could continue to drive capital toward this mega bank. If there is any sort of significant volatility in the regional banking space, JPMorgan has proven to be a willing buyer of assets. Accordingly, this mega-cap financials stock is largely viewed as the big dog in this space, and one that could simply get bigger over time, given the way the industry is structured.

Furthermore, if interest rate cuts improve economic stability, JPMorgan stands to benefit in a big way. This is a financial institution that’s widely diversified as far as its revenue streams are concerned. But given its size, broader economic trends matter. So, if the Fed does indeed engineer the soft landing everyone is hoping for, JPMorgan investors could laugh all the way to the bank with this stock trading at just 12-times earnings.

D.R. Horton (DHI)

D.R. Horton’s (NYSE:DHI) is among the largest homebuilders in the U.S., having consolidated this fragmented space via acquisitions over the years. Indeed, many investors view this company as more than just a bet on housing trends. This is a bet on a company with a strong track record of delivering value to shareholders, with DHI stock among the most consistent double-digit appreciators in the market (with dips along the way, of course).

This market-beating performance could be accelerated, if interest rate cuts take hold. As most investors are well-aware, interest rates significantly impact mortgage rates and demand for new housing. With most Millennial buyers tapped out of major markets (given where prices and mortgage rates are right now), any sort of relief could unleash a wave of pent-up demand from households who have outgrown their condos and apartments.

We’ll have to see exactly how sharply interest rates come down, and how these cuts affect mortgage rates. It’s worth noting that this year’s interest rate cuts are mostly priced into the bond market, which flows into the mortgage market. Accordingly, deeper-than-expected cuts will likely be needed for DHI stock to really catch fire from here (it’s been a top performing stock this year on rate cut speculation alone).

But if you’re in the camp that interest rates could come down faster than expected, this could be a great stock to look at right now.

SoFi Technologies (SOFI)

In Q2 2024, SoFi Technologies (NASDAQ:SOFI) saw a 41% increase in new members, adding to the thesis that this fintech company could be an undervalued pick at current levels. The company is mainly focused on student loan refinancing activity, which has picked up following the resumption of required payments last year. However, with interest rates rising, many student loan holders may have locked in interest rates lower than where the refinancing rate stands, leading to a lending slowdown over the near-term for SoFi.

Accordingly, as the Federal Reserve drops its overnight rates, and rates across the curve come down, the ability for SoFi to pass these lower rates onto student loan borrowers could bolster its balance sheet in a big way.

And aside form the company’s core student loan business, SoFi has seen a strong uptick in its other products, with 40% of products sold this past quarter coming from new members, and 30% of those members signing on for a secondary product within the first month.

SoFi’s ability to capture market share in the personal loans, auto loans, and other market segments could bolster even faster growth over time. In my view, SoFi remains an interest-sensitive stock investors may want to consider ahead of Fed rate cuts.

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