Will Fed Cut Rate In March Amid Virus Threat? Possible Gainers

With Wall Street reeling under the impact of the coronavirus outbreak, the market participants have been left perplexed with questions like as to when the crises will end or the number of corrections that the major stock indexes will go through.

However, the answers are uncertain at the moment as the market continues to tumble with the coronavirus outbreak becoming increasingly threatening to the United States and global economic growth.

Given the scenario, investors and industry watchers are once again looking up to the Fed for rate cuts in order to stabilize the market and streamline the economy.

Wall Street Mayhem Continues

Wall Street has been correcting itself over the last six trading days. On Feb 27, the three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — declined 4.4%, 4.4% and 4.6%, respectively. All three indexes are currently in correction territory (a range defined as a decline of 10% but not more than 20% from its recent high). Year to date, — the Dow, the S&P 500 and the Nasdaq Composite — are in negative territory with declines of 9.7%, 7.8% and 4.5%, respectively.

Meanwhile, on Fed 27, The CBOE VIX — which reflects S&P 500 option bets to calculate expectations for volatility over the coming 30 days — jumped 42.1% to close at 39.16. This was the volatility index’s highest closing in 14 months. Notably, in the last six trading days, the VIX — popularly recognized as Wall Street’s best fear gauge — soared 172.3%.

Fed’s March FOMC in Focus

Market participants are pinning hopes on the Fed to take necessary measures to support the ongoing historically largest U.S. economic expansion. As on Feb 28, per the CME Fed Watch, 100% probability is assigned for a quarter basis point rate cut and 23% probability is assigned for half a basis point rate cut in March. Notably, the Fed will conduct next FOMC meeting during Mar 17-18.

Moreover, the CME Fed Watch has also assigned 100% probability for 1% rate cut by September. That will bring the short-term target rate to below 1% for the first time since 2017.

Fed’s Stance

In the second half of February, several U.S. corporate behemoths either warned about future business prospects or reduced their financial guidance. Several investment firms have forecasted a mere 1% GDP growth and no earnings growth in the first-quarter 2020.

Although the Fed has given no indication of a rate cut so far, market participants are expecting a reduction in the benchmark rate as the coronavirus outbreak continues to spread globally. Moreover, the U.S. inflation is still at 1.6%, much below the central bank’s target rate of 2%.

Higher input costs and inability of management to plan properly owing to the potential impact of the coronavirus outbreak will result in a business investment slowdown. Fed’s rate cut will not only make cheaper funds available to businesses and stock market investors but will also make U.S. dollar cheaper in the international market, thereby, enabling the country’s exports to be more competitive.

Some of the Fed officials have hinted that the central bank will study more economic data (job data, ISM manufacturing and services data, industrial production data) of February to ascertain the material impact of the coronavirus outbreak on the U.S. economy. Notably, the European Central Bank, the Bank of Japan and Bank of South Korea are still holding their existing rates.

Meanwhile, the above-mentioned central banks are already pursuing either a negative or at least a zero interest rate policy. Further rate cut will result in higher tax burden on deposit holders. However, the Fed has a solid buffer with existing benchmark lending rate of 1.50-1.75%. Consequently, more rate cuts will not result in a major change in the central bank’s monetary policy and mechanism.

Possible Gainers

Under the circumstance of a rate cut in March, it will be prudent to invest in rate-sensitive sectors like real estate investment trust, utility and telecom. From a huge poll of stocks belonging to these sectors, we have narrowed down our search to six carrying a Zacks Rank #1 (Strong Buy). These stocks witnessed strong earnings per share estimate revisions in the past 30 days and have strong growth potential. You can see the complete list of today’s Zacks #1 Rank stocks here.

Six stocks namely, Telenav Inc. (NASDAQ:TNAV) , Forestar Group Inc. (NYSE:FOR) , Alpine Income Property Trust Inc. (NYSE:PINE) , Innovative Industrial Properties Inc. (NYSE:IIPR) , AquaVenture Holdings Ltd. (NYSE:WAAS) and MDU Resources Group Inc. (NYSE:MDU) fall in this category.

The chart below shows price performance of the six above-mentioned stocks in the past three months.

5 Stocks Set to Double

Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

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