The Federal Open Market Committee signaled a dovish outlook in its December meeting, forecasting several rate cuts as the U.S. economy heads toward a soft landing.
Nonetheless, recent speculation regarding sticky inflation rates and robust unemployment data raised questions about the timeline and magnitude of future rate cuts, causing U.S. equities to have a weaker-than-expected start to the year.
However, JPMorgan Chase & Co.'s JPM asset management division predicts multiple rate cuts as the U.S. economy slows down.
"What the market's pricing is roughly 1.5% of cuts and that's probably a reasonable central case," JPMorgan Managing Director Seamus Mac Gorain said. "In bad economic outcomes, it could be, you know, quite a bit bigger than that."
According to the CME Group's FedWatch tool, market participants anticipate the first rate cut to be implemented in March and five more throughout the year, ending 2024 with the federal funds rate within the range of 3.75%-4%, down from its current 22-year high.
These stocks could benefit from Federal Reserve rate cuts this year.
BCE
BCE Inc. BCE is one of the largest telecommunications companies in Canada, with a customer base of nearly 10 million that accounts for almost 30% of the total market share. The industry leader is poised to benefit from rate cuts as the company focuses on strengthening its 5G network.
BCE acquired 3800 megahertz (MHz) licenses last November to expand Bell's 5G network, which is expected to place the company at the forefront of the internet-of-things and industrial transformation.
BCE is an attractive dividend stock as well, as the telecom behemoth pays $2.87 in dividends annually, yielding an impressive 7.02% on the current share price. The company also is a dividend aristocrat, as it has raised its dividend payouts every year since 1983.
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Realty Income
Realty Income Corp. O is a real estate investment trust (REIT) with ownership in over 13,200 properties across 85 industries as of Sept. 30. As the Fed aims to slash rates in the upcoming months, the lower borrowing costs should allow the commercial REIT to expand its portfolio and improve its profit margins as operating expenses come down.
Also known as the Monthly Dividend Company, Realty Income is a Dividend Aristocrat as it has hiked its annual payout 123 times since its listing on the New York Stock Exchange in 1994. The company pays $3.08 in dividends annually, yielding approximately 5.2% on the current price.
In October, Realty Income entered into an agreement to acquire Spirit Realty Capital for $9.3 billion, which is expected to boost the former's annualized adjusted funds from operations (FFO) by 25%.
“We expect that this transaction will create immediate and meaningful earnings accretion while enhancing the diversification and depth of our high-quality real estate portfolio. Spirit’s assets are highly complementary to our existing portfolio, extending our investments in industries that have proven to generate durable cash flows over several economic cycles," Realty Incom President and CEO Sumit Roy said.
Analysts expect Realty Income's revenue to jump 29.2% year over year to $1.17 billion in the quarter ending in March. The REIT's FFO is expected to come in at $0.38 for the quarter, indicating an 11% rise from the same period last year.
Wolfe Research has an Outperform rating on Realty Income, with a price target of $66, indicating a potential upside of over 12%.
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