The federal funds futures market is indicating that there’s a 100% chance of an interest rate cut at the Sept. 17-18 Federal Reserve meeting. Interest rate-sensitive sectors like utilities would be some of the biggest beneficiaries of lower rates, including Duke Energy Corp. (DUK), suggests Marc Lichtenfeld, chief income strategist at Wealthy Retirement.
Futures markets also show a 74% probability of rates being at least a full percentage point lower by December. Due to the recent rise in unemployment, some have even been calling for an emergency rate cut of as many as 75 basis points (three-quarters of a percentage point) before the September meeting.
DUK, NEP, NJR (YTD % Change)
Data by YCharts
If rates do decline, there are certain sectors and stocks like utilities that will surely benefit. Since utilities tend to borrow a lot of money, lower rates mean lower interest payments.
There are plenty of quality utilities to choose from. But I like utilities like DUK that generate some of their power from nuclear power plants. Duke also pays a consistent dividend.
If you’re hunting for bigger yields, you might consider NextEra Energy Partners LP (NEP), which I’ve been pounding the table on for months. At recent prices, it paid a 14.5% yield. I also like New Jersey Resources Corp. (NJR), which recently announced that it expects earnings growth of 7% to 9% annually over the long term.
Recommended Action: Buy DUK.
