Investors are searching for clues about how the big Fed rate cut will impact the market. These stocks offer some early hints about where reduced interest rates will be felt — and what's to come next from the Federal Reserve.
David Saito-Chung, deputy markets editor at Investor's Business Daily, told the "Investing with IBD" podcast it's important to watch Treasury yields. "It's not just simply what the Fed is saying or what they're going to do, but what market participants in the bond market do with their real money," he said.
Debt market movements influence company investments in research and development, as well as decisions around stock buybacks or dividend payouts, Saito-Chung says. The Fed's decision earlier this month to cut rates by 50 basis points primarily affects interbank lending rates. Increased transactions between banks ultimately make it easier for businesses and consumers to obtain capital, effectively stimulating the economy.
Audio Version Of Podcast Episode
Saito-Chung says to watch these stocks for indications about how rates are affecting the market.
Homebuilders Rise On Reduced Rates
The Fed rate cut is directly influencing the homebuilder market. Builders rely on access to capital for construction, while mortgage rates are key to affordability for potential homebuyers. Homebuilder NVR is continuing its run-up after a flat-base breakout in mid-July. Shares have climbed 17% over the last two and a half months, fueled in part by the Fed's rate cut decision in September.
Though currently extended from a proper buy area, aggressive traders could've viewed the stock's move above a shelf entry on Sept. 13 as an opportunity to get in. The stock is No. 2 in the Building-Residential and Commercial group of stocks, according to IBD research, and holds a Composite Rating of 96.
Saito-Chung says that while the stock's high price – currently at around 9,600 as of Thursday – is a turnoff for some investors, its trajectory as a leader in its group of stocks makes up for it. "I think it's the best stock within the homebuilding group," Saito-Chung said.
Traders who don't want to plunk down nearly $10,000 for a single share can use NVR as a bellwether in the group, since the lofty purchase price means it's primarily institutional investors that own shares.
Food Delivery Could Catch Tailwind From Fed Rate Cuts
Food delivery and other consumer-focused stocks are also set to benefit from the Fed rate cut as consumers spend more on luxuries and conveniences. DoorDash benefits not just from good technical ratings, but is on the verge of turning profitable on good sales growth, Saito-Chung says.
DoorDash stock currently is No. 8 in the Retail-Internet group of stocks, according to IBD Research, and has a Composite Rating of 86. The stock is extended after breaking out in mid-September from a 23-week cup-with-handle that began in April. For investors who bought on the breakout, shares are moving to a profit-taking zone but are not there just yet.
Tap here to learn what's next for the market according to Fed rate cut history
Follow Mike Juang on X at @mikejuangnews and on Threads at @namedvillage.
