The S&P 500 and Nasdaq continued their record rallies this week after cooler-than-expected consumer inflation data came in Wednesday morning. While Fed rate cuts would likely benefit the overall stock market, several names in CNBC Investing Club's portfolio — from real estate stocks to autos to biotech — could really see a boost. Here's how to connect the dots: The consumer price index for May was released before the opening bell on Wall Street — just hours before the Fed wrapped up its two-day June meeting. The unchanged month-over-month CPI reading followed several months of showing that inflation would not be so easily defeated. During his post-meeting press conference, Fed Chair Jerome Powell stressed that more progress needed to be made in reducing the inflation rate before we saw our first rate cut. The Fed ultimately left rates steady again this time. While central bankers look at inflation to determine the appropriate level of borrowing costs, it's important to consider how each of these factors – inflation and interest rates – affects consumer purchasing power. Inflation is the rate of price increases over time. Interest rates are about the cost of money. Inflation tells us about list prices, while interest rates determine whether borrowers can afford higher-priced items like cars and homes that typically require a financing arrangement. Housing: Because of its connection to the housing market, we consider Stanley Black & Decker to be a major beneficiary of the Fed's rate cuts. That's not because lower interest rates make tools so much more affordable (power tools don't typically need financing), but because of the things that drive consumers to go out and buy those tools. It's the big purchase, the home, that's driving demand. Cheaper mortgages and lower prices will drive home buying. That means more home building, which would give Stanley more business in the professional space. More homeowners also mean more potential buyers of tools needed for home repairs and renovation projects. This home-building dynamic should also provide an additional boost to companies like Best Buy and off-price retailer TJX, with its HomeGoods and HomeSense brands. Finally, once you buy your new home, you'll probably need to furnish it, too. That's TJX. You'll also probably shop around for consumer electronics and appliances. That's Best Buy. Both retailers could also find that people are willing to spend more because they don't have to borrow as much money for major purchases (less interest), leaving them with more money to spend. Banks When we talk about financing, we need to consider the banks that actually make loans. The benefits of lower rates, however, are less clear. On the one hand, lower rates mean that a bank like Wells Fargo makes less money on the money it lends. On the other hand, however, Wells Fargo could also lend more if demand for loans increases. While we will have to wait and see how this plays out in terms of interest income, we believe the increased demand for credit and more robust economic activity bode well for banks. Ultimately, a healthier economic environment with continued cash flow is a good thing. Our other financial stock, Morgan Stanley, was hurt by higher interest rates as many clients shifted their money in search of higher returns. With interest rates falling, this dynamic should partially reverse. Morgan Stanley also has a robust investment banking business that would benefit from lower interest rates as they increase demand for underwriting initial public offerings (IPOs) and fees from mergers and acquisitions. Biotech firm Danaher should also benefit as lower interest rates lead to improved financing dynamics for biotech companies. A decline in biotech financing in addition to the collapse of Silicon Valley Bank curbed demand for Danaher's biologics portfolio. SVB was a key source of capital for biotech companies. So, as venture capital funding comes back and more biotech companies look to go public, demand for biologics should rise, too. Cars Another portfolio winner would be Ford. For most people, buying a car means borrowing money at a certain interest rate and paying it back over a few years. Like homeownership, monthly payments become much more manageable with lower interest rates, and thus affordability and demand are likely to rise. Ford has been moving away from loss-making all-electric vehicles and investing more resources in high-margin hybrid vehicles. Monthly sales numbers confirm the wisdom of that strategy. Any help on interest rates to make cars more affordable could boost a business that's already heading in the right direction. Companies Palo Alto Networks stands out on the corporate side. In recent quarters, the cybersecurity giant has said its customers — businesses large and small — have been trying to adjust payment terms due to higher financing costs. While it's not a demand issue, we could certainly see changes in the tone and pace of deal making and size as companies become more comfortable with cheaper borrowing costs. Salesforce, which has also shown more moderate business activity, may not benefit as much from lower rates. We're still trying to figure out how much of a headwind financing rates are versus customers' realization that they may be able to achieve similar results by leveraging generative artificial intelligence tools from Salesforce competitors like Microsoft. (A full list of stocks in Jim Cramer's Charitable Trust can be found here.) As a subscriber to CNBC Investing Club with Jim Cramer, you'll receive a trade alert before Jim makes a trade. Jim waits 45 minutes after he sends a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has discussed a stock on TV on CNBC, he waits 72 hours after the trade alert is issued before executing the trade. THE INFORMATION REGARDING INVESTING CLUB DESCRIBED ABOVE IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY AND OUR DISCLAIMER. NO FIDUCIARY OBLIGATION OR DUTY EXISTS AND WILL BE CREATED BY RECEIVING INFORMATION RELATED TO INVESTING CLUB. NO PARTICULAR RESULT OR PROFIT IS GUARANTEED.
Stanley Black & Decker drills are displayed for sale at a Home Depot store in Colma, California.
David Paul Morris | Bloomberg |
The S&P500 And Nasdaq continued their record rallies this week after lower-than-expected consumer inflation data came in Wednesday morning. While Fed rate cuts would likely benefit the overall stock market, several names in the CNBC Investing Club portfolio – from real estate stocks to autos to biotech – could really see a boost.
