THREE Stocks to Pounce On if Jerome Says “Three Magic Words” in Jackson Hole Tomorrow

Thursday was another anxious day for Wall Street—and for those of us living in our mom’s basements—with the S&P 500 pulling back 0.8% as investors held their breath for Fed Chair Jerome Powell’s upcoming speech at the Jackson Hole conference tomorrow (fingers crossed).

The Dow dropped 192 points (or 0.5%), while the Nasdaq took a 1.3% crapper, led by Nvidia losing over 3% of its value. Rising bond yields didn't help, with the 10-year Treasury yield ticking up to 3.875%.

Peloton’s back in the game, reporting $644 million in fourth-quarter revenue—bringing some serious 2020 vibes. Losses were just $0.08 per share, beating Wall Street’s expected $0.17. And the stock? It’s up 38%, giving investors hope that the company’s finally moving past the curse of that one Christmas ad. But with shares still down over 20% this year, it’s clear they’ve got some serious pedaling left to do.

THREE Stocks to Pounce On if Jerome Says "Three Magic Words" in Jackson Hole Tomorrow

After nearly three years of the Fed playing puppet master with our finances, yanking our chains with one brutal rate hike after another, rumor has it that Jerome Powell might finally be ready to toss us a bone. 

Word on the street is, Powell’s going to waltz onto the stage at Jackson Hole, cowboy boots clacking like he’s about to drop a country album, and hit us with the words we’ve all been waiting to hear: “We’re cutting rates.”

Now, before you run out and put a downpayment on that shiny new Range Rover, let’s take a quick detour into Nerdsville. 

Historically speaking, when the Fed starts trimming rates, the S&P 500 tends to throw a little celebration. In 12 out of the last 14 rate-cut cycles since 1929, the S&P posted positive returns within a year. That’s a pretty solid track record—unless, of course, you were the poor soul who bought in right before the dot-com bubble or the subprime mortgage disaster. But hey, this isn’t 2007, and we’ve got our eyes on the prize in 2024. 

So, what does this potential rate cut mean for your portfolio? First off, don’t just sit there waiting for Jerome to pass out the candy. Let’s talk about where you should be placing your bets if the Fed does say those magic words.

The big play here if rates get cut is to keep an eye on cyclical stocks—those companies that thrive when the economy starts hitting the gas. 

We’re talking about businesses in consumer goods (you know, the stuff people splurge on when they’re feeling flush), industrials (like the construction giants who finally get to build all those delayed projects), and big tech firms sitting on cash piles so high they could make Scrooge McDuck jealous. If Jerome gives the green light and lowers rates, these companies could see a serious shot in the arm.

Let’s start with Alphabet (GOOGL). This tech giant has handled rising interest rates well, thanks to its $118 billion in cash reserves. While companies like Meta and Twitter struggle with higher costs, Alphabet continues aggressive investments in AI and cloud computing. Currently, the stock is trading at a nearly 10% discount this month, making it an attractive buy. They’ve also kept up their $70 billion stock buyback program in 2023. If the Fed cuts rates, lower borrowing costs and increased consumer spending could further boost Alphabet’s strong position, driving growth in core areas like Google Search, YouTube, and cloud services.

Next up, we’ve got Crocs (CROX). I know, those foam clogs might not be winning any fashion awards, but Crocs’ financial performance has been nothing short of stellar. Crocs’ revenue surged from $1.2 billion in 2019 to $3.6 billion in 2023, yet the stock remains undervalued with a P/E ratio around 15—lower than many of its retail peers. This suggests that the market hasn’t fully appreciated Crocs’ growth potential. 

The brand’s expansion, including the acquisition of Hey Dude shoes, has strengthened its market position and diversified its offerings. If the Fed cuts rates, consumers could have more disposable income, leading to higher sales for Crocs. This, coupled with lower borrowing costs, could boost profits and help the stock price reflect the company’s true value.

Last but not least, let’s look at JP Morgan Chase (JPM), a heavyweight in banking. This financial giant has a wide economic moat, giving it strong competitive advantages. Morningstar estimates its fair value at $178 per share, but it’s currently trading around $150, making it an attractive option. JP Morgan has thrived despite rising interest rates, leveraging its $3.5 trillion in assets. In 2023, the bank generated $121 billion in revenue, thanks to its diversified income streams like investment banking, asset management, and consumer banking.

If the Fed cuts rates, JP Morgan could benefit from increased loan demand and higher profit margins. With a $2.4 trillion deposit base, the bank could lend more aggressively, capitalizing on the economic upswing and potentially strengthening its position even further.

So there you have it—a handful of stocks that could be your golden tickets if Powell decides to stop playing hardball and starts cutting rates. And hey, if the Fed doesn’t cut rates and I end up looking like a fool, well, that’s a risk I’m willing to take. But if they do, and you’re rolling in profits, don’t forget who gave you the heads-up.

Stock.News has positions in Alphabet and Meta.