Falling Inflation: Who Are Likely To Be The Stock Market Winners?

Whether inflation fell or rose slightly in December, analysts still forecast the Federal Reserve will start to cut interest rates in the first few months of 2024.

Which stocks and sectors are likely to welcome these cuts the most?

The December inflation report will be published on Thursday and it is among the key economic data reports that shape Fed policy in the early months of 2024. Consensus estimates suggest the annual headline rate will tick higher to 3.2%, up from 3.1% in November.

Equity markets, as a whole, responded last year to signs inflation was cooling and the Fed wouldn’t raise interest rates beyond the 5.25%-5.5% hit in July. Between late October and the end of December, the S&P 500 put on 16% — as did the exchange-traded fund that tracks it, the SPDR S&P 500 (NYSE:SPY).

“The countdown to the latest U.S. inflation reading has begun, and investors are hunkering down ahead of a potentially volatile period for markets,” said Chris Beauchamp, chief market analyst at IG.

He added: “Broader risk-off sentiment could prevail tomorrow and beyond should U.S. inflation show signs of reviving.”

This might mean higher-for-longer interest rates as the Fed delays any inkling to cut rates. But, if the inflation reading comes in at expectations — or below — perhaps we’ll see risk appetite rise again.

So, which stocks would benefit from the lower inflation scenario? We’ve picked out a few categories here.

Also Read: Record Online Holiday Spending Driven By Deep Discounts And ‘Buy Now, Pay Later’ Deals

Consumer Confidence Rises

Consumer confidence is tightly linked to inflation and inflation expectations. The last measure of consumer confidence published by the University of Michigan was the best reading in five months as expectations of inflation for the year ahead dropped to 3.1%.

Lower inflation in the coming months will improve consumer confidence so long as the economic downturn doesn’t become too severe and drive unemployment higher. Thus, consumer-oriented stocks should perform well.

Amazon.com, Inc. (NASDAQ:AMZN) already rallied strongly during 2023. It remained the world’s biggest e-commerce company and now has its hand in many other enterprises — particularly, it is a leader in artificial intelligence development which is likely to be a key investment…