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Easing Inflation Paves Way for September Rate Cut: 5 Winners

Consumer price pressures eased in May, thanks to a drop in gasoline prices that more than offset a dogged rise in shelter prices. The Labor Department stated that the consumer price index (CPI) held flat last month as inflationary pressure loosened its grip on the U.S. economy.

From a year ago, the CPI nevertheless increased 3.3%. But it’s still less than April’s yearly rise of 3.4% and way less than the pandemic-era peak of 9.1% in 2022, the highest level since 1981.

Core CPI, which doesn’t consider the volatile fuel and food costs, also saw its monthly and yearly increase falling short of estimates. Core CPI’s annual rate declined to 3.4%, a fresh three-year low, as transportation service prices dropped for the first time in May since 2021, and vehicle insurance prices fell following a sharp rise in the prior two months.

Producer prices, meanwhile, dropped surprisingly last month, a tell-tale sign that inflation is subsiding. The producer price index fell 0.2% month over month in May, following an advance of 0.5% in April.

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This is a tell-tale sign that the Federal Reserve will remain less aggressive with its monetary policy and won’t be hiking interest rates this year. In reality, the Fed has kept interest rates unchanged in its latest policy meeting and is projecting one rate cut this year, preferably in September. The CME FedWatch Tool at present shows that 57.9% of market participants expect a quarter-point interest rate cut in the September meeting.

Now, interest rate hikes are intended to curb consumer outlays and control inflation. But the latest dip in retail sales in May has shown that consumers are already feeling the burden of higher interest rates. Thus, it’s widely expected that the Fed will trim interest rates as early as the fall, which is undeniably a blessing in disguise for tech stocks. This is because a tech company’s cash inflows aren’t impacted in a low-interest-rate environment. Moreover, interest rate cuts reduce the cost of borrowing and boost profit margins.

Similarly, a lower interest rate scenario bodes well for capital-intensive utility companies as it decreases their debt level and helps them pay off their dues and notch profits. This calls for investing in stocks such as Alphabet Inc. GOOGL, NVIDIA Corporation NVDA, Micron Technology, Inc. MU, Vistra Corp. VST and CenterPoint Energy, Inc. CNP at the moment. The stocks boast a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Alphabet is one of the most innovative companies in the modern technological age. GOOGL currently has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has increased 12.1% over the past 60 days. The company’s expected earnings growth for the current year is 31%.

NVIDIA is the worldwide leader in visual computing technologies and the inventor of the graphic processing unit, or GPU. NVDA currently has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has increased 12.1% over the past 60 days. The company’s expected earnings growth for the current year is 106.2%.

Micron Technology has established itself as one of the leading worldwide providers of semiconductor memory solutions. MU currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has increased 10% over the past 60 days. The company’s expected earnings growth for the current year is 119.8%.

Vistra offers electricity and power generation, distribution and transmission solutions. VST currently has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has increased 13% over the past 60 days. The company’s expected earnings growth for the current year is 13.7%.

CenterPoint Energy provides electric transmission and distribution, power generation, and natural gas distribution operations. CNP currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-quarter earnings has increased 9.4% over the past 60 days. The company’s expected earnings growth for the current year is 8%.

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Alphabet Inc. (GOOGL) : Free Stock Analysis Report

Vistra Corp. (VST) : Free Stock Analysis Report

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Zacks Investment Research