As the stock market looks ahead to Wednesday's Fed decision on interest rate cuts, Broadcom, Toll Brothers and Procter & Gamble could provide clues as to how different sectors of the market will react to the news. Up for debate is the size of potential rate cuts, with some analysts predicting the cuts could be larger than anticipated to cope with a cooling economy.
Should investors play defense in their portfolios, or should they play offense? Harold Morris, MarketSurge and Leaderboard senior product coach at IBD, joined the "Investing With IBD" podcast to explain why Broadcom, Toll Brothers and Procter & Gamble are stocks to watch as the Fed's decision on rate cuts looms.
Play Defense Ahead Of Rate Cuts?
Consumer staples giant Procter & Gamble is a good proxy for a defensive market posture ahead of rate cuts, with a reliable and steady customer base but with growth that pales in comparison to other riskier stocks. "It's historically a defensive play," Morris said. "That's where institutions tend to go to park money during times of weakness."
The slow-and-steady stock is up 21% so far this year vs. an 18.4% gain for the S&P 500 through Monday's close. While Procter & Gamble stock underperforms the S&P 500 over longer periods, it has less volatility and pays a dividend, making it attractive to fund managers in times of uncertainty. The stock is ranked No. 4 in the Cosmetics/Personal Care industry group of stocks, according to IBD Research. It has an IBD Composite Rating of 75.
Audio Version Of Podcast Episode
Broadcom Shows Relative Strength Vs. Chips
Broadcom stock is setting up in a consolidation pattern, according to IBD MarketSurge charts, with a year-to-date gain of 47%. Drawing a declining-tops trendline from the stock's peaks in July and in August points to a potential aggressive entry into the stock at around 160 per share.
While Broadcom is holding up well vs. many other chip stocks, it's difficult for a stock like Broadcom to participate meaningfully to the upside if the tech sector is out of favor or underperforming other groups. Rate cuts could shake up that calculus.
Morris says investors can start with a small investment in Broadcom, then add to that position if the stock makes progress. "But like we've been saying all along, you've got to wait and see what the overall market's going to do," Morris said, referring to the stock market's reaction to the Fed's decision on interest rate cuts.
Broadcom stock is currently ranked No. 1 in the Electronic-Semiconductor Fabless industry group, according to IBD research. It has an IBD Composite Rating of 98.
Rate Cuts In Focus For Toll Brothers Stock
Toll Brothers is among homebuilder stocks showing strength as Treasury yields continue to fall in anticipation of Fed rate cuts. Declining Treasury yields indicate that mortgage rates will go down, stimulating demand for homes and mortgages.
Shares of Toll Brothers have taken off in the last few trading days, hitting an all-time high on Monday. The stock is up 46% so far this year and trading 7.6% above its 10-week line.
"This stock is showing some signs of potential strength and a move to the upside," said Morris. Toll Brothers is ranked No. 8 in Building-Residential/Commercial industry group, according to IBD Research, and has an IBD Composite Rating of 96.
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