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Fed Minutes Reiterate Dovish Stance: 5 Excellent Picks

Minutes of the Fed meeting held from Mar 19-20 bolstered the view that the central bank is likely to keep rates unchanged this year. Fed policymakers cited the risks posed by a global slowdown and trade tensions as the primary reasons for taking such a position. Fed Chair Jerome Powell has stated that the central bank will be “patient” while taking decisions related to rates.

Of course, the central bank did leave some room for flexibility in policymaking. The Fed indicated that the future path of rates would be data-dependent and sensitive to forthcoming developments. This led several economists to speculate that a rate cut is likely in the near future.   

Rate-sensitive stocks are likely to gain from such a move. This is why it makes sense to park your funds in real estate investment trusts (REITs) and utility stocks which also offer attractive dividends. 

Global Slowdown, Trade Tensions Lead to Dovish Stance

According to the minutes, most Fed policymakers believe that the federal funds target rate should remain unchanged for the rest of the year, given the challenges that the economy is facing at present. The threat of a global economic slump and unresolved trade disputes are the primary risks to the U.S. economic outlook for 2019.

Fed policymakers also expressed concerns about the sluggish pace of domestic growth witnessed early this year. The central bank also believes that the fallout of a likely inevitable Brexit could harm the economic outlook.

Sluggish inflation has provided some respite to the Fed. According to the minutes, a robust labor market, rising wages and the imposition of tariffs have failed to boost prices significantly. “Several” policymakers believe that the metric may remain below the long-term target of 2% this year.

Could a Rate Cut Happen this Year?

Despite comments to the effect that it would keep rates flat this year, the central bank provided itself with enough room for flexibility. The majority of policymakers believe that the rates “could shift in either direction based on incoming data,” per the minutes. There was also an indication that rates could be hiked marginally if domestic economic momentum picks up.

While the Federal Reserve thinks the economy will “bounce back solidly” in the second quarter, there is little reason to believe that a rate cut will take place. Instead, market futures are currently pricing in no chance of a hike and a near 55% chance of a rate cut.

In fact, Andrew Hunter of Capital Economics thinks additional rate hikes are “increasingly unlikely.” While the Fed minutes provide no basis to believe that rate cuts would indeed take place, Hunter thinks they will indeed occur going forward.

Our Choices

Minutes of the Federal Reserve’s latest minutes provide enough reason to believe that rates will likely remain flat this year. In fact, economists and market watchers think chances of a rate hike later this year are exceedingly high.

Rate-sensitive investments like utilities and REITs, which offer attractive dividends, are useful additions to your portfolio under such circumstances. We have narrowed our search to the following stocks based on a good Zacks Rank and other relevant metrics.

Otter Tail Corporation OTTR is involved in the production, transmission, distribution and sale of electric energy.

Otter Tail has a Zacks Rank #1 (Strong Buy). The company has expected earnings growth of 6.8% for the current year. The Zacks Consensus Estimate for the current year has improved 1.2% over the past 30 days. The stock has a dividend yield of 2.8%.

Hunt Companies Finance Trust, Inc. HCFT operates as a real estate specialty finance company.

Hunt Companies’ expected earnings growth for the current year is more than 100%. The Zacks Consensus Estimate for the current year has improved 10% over the past 30 days. The stock has a dividend yield of 8% carries a Zacks Rank #1 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Boston Properties, Inc. BXP is a REIT which owns and develops Class A office real estates in the United States.

Boston Properties has a Zacks Rank #2 (Buy). The company’s expected earnings growth for the current year is 10%.  The Zacks Consensus Estimate for the current year has improved 0.1% over the past 30 days. The stock has a dividend yield of 2.8%.

CMS Energy Corporation CMS is focused primarily on its principal subsidiary, Consumers Energy, an electric and natural gas utility serving about 6.5 million of Michigan's 10 million residents.

CMS Energy has a Zacks Rank #2. The company has expected earnings growth of 7.6% for the current year. The Zacks Consensus Estimate for the current year has improved 0.2% over the past 30 days. The stock has a dividend yield of 2.8%.

Alexandria Real Estate Equities, Inc. ARE is an urban office REIT with particular focus on collaborative life science and technology campuses

Alexandria Real Estate Equities has a Zacks Rank #2. The company has expected earnings growth of 5.5% for the current year. The Zacks Consensus Estimate for the current year has improved 0.3% over the past 60 days. The stock has a dividend yield of 2.7%.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.