Jerome Powell Just Cut Rates. Here Are Stocks That Could Soar.
The market has long anticipated the Federal Reserve’s quarter-point rate cut, but as ever, the next question is what and when its next move will be. Or rather, what is the bond market assuming its next move will be? The good news for interest rate doves is that the market, initially at least, is pricing in lower interest rates on the way, which would be great news for interest-rate-sensitive stocks like Whirlpool (NYSE: WHR) and Tesla (NASDAQ: TSLA).
The Federal Reserve’s Federal Open Market Committee (FOMC) voted 11-1 in favor of the rate cut, with one dissenting member voting for a more aggressive 0.5-percentage-point cut. The rate cut was accompanied by a decline in bond market benchmark 10-year Treasury yields and a decrease in 30-year mortgage rates.
Moreover, the bond markets are pricing in more near-term rate cuts. This is implied by examining the 10-year, two-year, one-year, and six-month Treasury rates. In normal circumstances, the 10-year rate should be the highest, and the six-month rate the lowest; this reflects the greater risk associated with longer-dated bonds due to a possible increase in interest rates.
Indeed, the 10-year yield is the highest; however, note that the six-month rate is higher than both the one-year and two-year rates. This implies that the market expects rates to go lower within one to two years.
Lower mortgage rates tend to help make housing more affordable for borrowers, which can lead to more home sales and new home construction. More housing and sales is a plus for domestic appliance makers like Whirlpool. Individuals often remodel their homes before selling and after buying a new one. As such, the higher-margin discretionary demand for household appliances tends to follow existing home sales.
Whirlpool has struggled this year due to weak discretionary demand, and an improved U.S. housing market would definitely help boost sales. In addition, Asian competitors have preloaded the market ahead of tariff implementation, thereby creating a highly competitive price environment. Lower rates could boost demand and help clear the market’s excess appliance inventory.
With the current tariff landscape in place, Whirlpool’s competitiveness (the company makes roughly 80% of what it sells in the U.S. within the U.S.) is likely to improve significantly in the future, and it’s set to be a big winner from the Trump administration tariffs.
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