Inflation has been showing signs of easing lately but is still far from the Fed’s target level. Economic data released over the past week have been impressive on multiple fronts, including a jump in jobless claims.
This has seen investors becoming hopeful about the Fed putting a pause on rate hikes in its next meeting. However, the crisis is far from over, with major sectors like manufacturing and homebuilding still struggling. This has seen markets remaining volatile almost throughout May. Hence, consumers are still spending cautiously. Given this situation, they should place their bets on stocks that assure risk-adjusted returns.
Market Volatility Continues
Markets have been struggling for direction despite inflation showing signs of easing. The consumer price index (CPI) reading for April, which was released on May 10, showed that consumer prices rose 4.9% year over year compared to 5% recorded in March. This is the lowest annual rate in two years. However, it is still a lot higher than the Fed’s target level of 2%.
Moreover, CPI increased 0.4% month over month in April, up from March’s rise of 0.1%. Also, Core CPI remained elevated as it rose 0.4% in April for the second straight month.
The report was followed by the Producer Price Index (PPI) numbers the next day. The PPI reading showed wholesale prices grew only 0.2% month over month in April, after falling 0.4% in March. However, it was lower than analysts’ expectations of a rise of 0.3%.
Core PPI, which excludes the volatile food and energy prices, climbed 0.2%, which came in line with expectations.
On a year-over-year basis, PPI rose 2.3% in April, down from March’s reading of 2.7%. This is also the lowest reading since January 2021.
This has given investors’ confidence a slight boost as they believe that the Fed could finally pause its interest rate hikes as early as its June meeting.
Separately, the Labor Department reported that jobless claims totaled 264,000, a lot higher than the economists’ expectations of 245,000. This is the highest level since October 2021 and an indication that the labor market is cooling.
However, volatility continues in markets, given that investors are yet to get a clear picture of the Fed’s future course of action. The Fed hasn’t given any clear indication of pausing its interest rate hikes. Instead, in its last meeting, the central bank said that it would make a decision based on the data that comes in.
Also, the jobs data show that a significant number of jobs are being added to the economy every month.
Moreover, fears have once again gripped the markets after regional banks started showing signs of instability. Following the collapse of three major regional banks in the past two months, last week PacWest Bancorp PACW said in a regulatory filing that its deposits declined 9.5% in the week of May 5. This has been weighing on other regional banks.
The best course of action in this circumstance would be to invest in defensive sector equities, like those in consumer staples and utilities.
The consumer staples sector is fundamentally strong and mature, given that consumer demand for staples tends to be resilient to changes in the economic cycle. Businesses that essentially sell daily commodities make up the consumer staples sector. As a result, the sector is considered defensive in nature.
The sector is renowned for its stability and transparency of its profitability and cash flow. Thus, adding stocks to a portfolio from the consumer staples basket makes it more resilient in a choppy market.
These stocks, or, to put it another way, their businesses are non-cyclical, shielding them from the vagaries of the market. They also pay dividends, indicating their high-quality business and ability to withstand market volatility.
Ollie's Bargain Outlet Holdings, Inc. OLLI is a value retailer of brand name merchandise at drastically reduced prices. OLLI offers products principally under Ollie’s, Ollie’s Bargain Outlet, Good Stuff Cheap, Ollie’s Army, Real Brands Real Cheap!, Real Brands! Real Bargains!, Sarasota Breeze, Steelton Tools, American Way and Middleton Home.
Ollie's Bargain Outlet’s expected earnings growth rate for the current year is 58.6%. The Zacks Consensus Estimate for its current-year earnings has improved 8.4% over the past 60 days. OLLI has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Hershey Company HSY is the largest chocolate manufacturer in North America as well as a global leader in chocolate and non-chocolate confectionery. Additionally, HSY manufactures pantry items like baking ingredients, toppings and beverages; and gum and mint refreshment products; snack bites and mixes, as well as spreads.
The Hershey Company’s expected earnings growth rate for the current year is 11.5%. The Zacks Consensus Estimate for the current-year earnings has improved 1.2% over the past 60 days. HSY has a dividend yield of 1.5%. The Hershey Company has a Zacks Rank #2.
General Mills, Inc. GIS is a global manufacturer and marketer of branded consumer foods sold through retail stores. GIS also serves the foodservice and commercial baking industries. General Mills’ principal product categories include ready-to-eat cereals, convenient meals, snacks (including grain, fruit and savory snacks, nutrition bars, and frozen hot snacks), super-premium ice creams as well as baking mixes and ingredients.
General Mills’ expected earnings growth rate for the current year is 7.4%. The Zacks Consensus Estimate for its current-year earnings has improved 1.2% over the past 60 days. GIS has a dividend yield of 2.4%. General Mills has a Zacks Rank #2.
Conagra Brands, Inc. CAG is one of the leading branded food companies of North America. CAG offers premium edible products, with a refined focus on innovation. Conagra Brands maintains a highly dynamic product portfolio and incorporates alterations within it as per the preference pattern of its end users.
Conagra Brands’ expected earnings growth rate for the current year is 16.5%. The Zacks Consensus Estimate for its current-year earnings has improved 3.4% over the past 60 days. CAG has a dividend yield of 3.59%. Conagra Brands has a Zacks Rank #2.
Lamb Weston Holdings, Inc. LW is a leading global manufacturer, marketer and distributor of value-added frozen potato products, particularly French fries, and provides a range of appetizers. LW, along with its joint venture allies, is the top frozen potato products supplier in North America, while it also operates internationally, with a robust and growing presence in emerging markets.
Lamb Weston’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for the current-year earnings has improved 14.2% over the past 60 days. LW has a dividend yield of 0.98%. Lamb Weston has a Zacks Rank #1.
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