Major indexes spent most of the day bouncing as investors awaited the mid-afternoon release of minutes from the Federal Reserve’s June meeting, where the central bank issued its first hike. rates by 75 basis points in almost three decades. A basis point is one hundredth of a percentage point.
Minutes of the meeting revealed that another sharp rate hike is likely when the Fed meets later this month (July 26-27) as the central bank attempts to rein in searing inflation. Specifically, the minutes suggested that “an increase of 50 or 75 basis points would probably be appropriate at the next meeting.”
Additionally, the minutes said Fed officials believed the current economic outlook “warranted a shift to a restrictive policy stance,” while leaving the door open for “an even more restrictive stance” if elevated levels of inflation persisted. Translated: ongoing rate cuts, deeper rate cuts, more bond selling, or a combination of these.
“The main message of the Fed Minutes is, now, what the parade of Fed speakers since the last meeting has underscored, which is that ‘tighter’ policy measures will be needed if inflationary pressures do not subside. ‘not noticeably attenuate,’ says Jamie Cox, managing partner. for Virginia-based Harris Financial Group. “The markets got the message loud and clear.”
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“What caught my attention was the reference to a potential pause at the end of the year,” said Cliff Hodge, chief investment officer of North Carolina-based Cornerstone Wealth. ‘This is new and extremely important.’ Participants noted that, with the federal funds rate expected to be near or above estimates of its long-term level later this year, the Committee would then be well placed to determine the Appropriate pace of news on policy tightening and the extent to which economic developments warranted policy adjustments.They were already mulling the appropriate level to stop policy tightening in June, before the economic data streak really deteriorated. “
Stocks continued to wobble immediately after the Fed minutes were released before taking a confident turn higher. At the close, the Nasdaq Compound rose 0.4% to 11,361, the S&P 500 Index was 0.4% higher at 3,845 and the Dow Jones Industrial Average added 0.2% to end at 31,037.
And as the broader stock market gained ground, U.S. Crude Futures continued to decline, losing 1% to settle at $98.53 a barrel. This officially put crude oil futures in bearish territory, with today’s closing price down 20.3% from their March 8 settlement high at $123.70 a barrel. .
Other news on the stock market today:
- Small cap Russell 2000 fell 0.8% to end at 1,727.
- Gold Futures Contracts fell for a seventh straight day, ending down 1.6% at $1,736.50 an ounce – their lowest settlement price since September 2021.
- Bitcoin slipped 0.5% to $20,300.63. (Bitcoin trades 24 hours a day; prices shown here are as of 4 p.m.)
- Uber (UBER, -4.5%) and DoorDash (DASH, -7.4%) were two notable declines today following the announcement that Amazon.co.uk (AMZN, +0.7%) has reached an agreement with food delivery company GrubHub. As part of the partnership, AMZN will offer Prime members a one-year GrubHub membership that includes a $0 shipping fee. Additionally, the e-commerce giant will have the option of taking a 2% stake in GrubHub, which is owned by European food company Just Eat Takeaway.com. “We believe the announcement has notable implications for the competitive landscape in the food delivery space, as the transaction essentially creates a more relevant #3 player after years of Grubhub losing market share,” says Angelo Zino, analyst at CFRA Research. “Grubhub will have the ability to leverage Amazon’s large Prime base, which should drive volume up at a time when the pandemic tailwinds are fading.” Zino believes DASH will be more impacted by the deal “given its dominant US revenue exposure and market share gain advantages in recent years.”
- Rocket companies (RKT) jumped 4.5% after Wells Fargo analyst Donald Fandetti upgraded the fintech stock from Equal Weight to Overweight (the equivalents of Buy and Hold, respectively). “Although the residential mortgage market remains extremely challenging, we view RKT as a beneficiary of the dislocation, and interest rate expectations appear to have less upside tail risk,” Fandetti said. And following RKT’s nearly 40% year-to-date decline, the analyst believes there is “a better risk/reward for the stock in a sector where negative sentiment may have culminated”.
Don’t count growth stocks, but be selective
Could growth stocks finally be ready for their day in the sun? Perhaps, suggests Carl Ludwigson, managing director of investment firm Bel Air Investment Advisors.
“Generally, an economic downturn implies a scarcity of growth and a decline in inflation as demand declines,” Ludwigson said. “This environment of lower growth and inflation should favor quality growth stocks which tend to be less cyclical than value stocks.”
But not all economic cycles are equal – and even with the recent correction, many large-cap growth stocks remain expensive relative to historical valuations. As such, Ludwigson points to growth at a reasonable price (GARP) as a way for investors to position themselves for a downturn. GARP stocks are the version of investing that is about having your cake and eating it too, providing portfolios with growth prospects and attractive valuations.
With that in mind, we’ve compiled a list of the best GARP stocks to buy right now. The names featured here are expected to deliver double-digit earnings growth over the next year and are reasonably priced to boot.
Karee Venema has long been AMZN at the time of this writing.