The recent much-anticipated July inflation report came in a bit cooler than expected, providing further evidence that the Federal Reserve will soon start to cut interest rates. As the likelihood of a rate cut increases, investors should consider stocks in sectors that historically benefit from a lower rate environment. JPMorgan Chase & Co. (JPM) and Bank of America Corp. (BAC) are two potential winners, writes Jesse Cohen, senior financial analyst at Investing.com.
The July CPI report indicated that inflation rose by 0.2% for the month, compared to expectations for a gain of 0.2%. On an annual basis, the headline CPI increased by 2.9%, down from the 3% rise seen in June.
This marked the smallest year-over-year increase since March 2021, signaling that the aggressive interest rate hikes by the Fed are finally having their intended effect on inflation.
Using the InvestingPro screener, I managed to easily identify several stocks with strong upside ahead worth considering amid the current market backdrop.
Source: InvestingPro
While financial stocks typically face headwinds from lower interest rates, large banks like JPM and BAC could still thrive in this environment. These banks have diverse revenue streams, including wealth management, trading, and investment banking, which can offset the impact of lower net interest margins.
Moreover, lower interest rates could lead to an increase in loan demand, boosting these banks' lending businesses. Additionally, with strong capital positions and robust dividend yields, JPMorgan Chase and Bank of America offer both growth and income potential for investors.
Recommended Action: Buy JPM, BAC.
