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7 Hot Stocks That Could Fly if the Fed Goes Dovish in 2024

Based on the latest economic print, the Federal Reserve expects a shift in monetary policy, which undergirds certain stocks for a dovish Fed. It really comes down to the return of the normal way of doing business.

Baseball fans everywhere know about superstar Shohei Ohtani’s record-breaking $700 million contract with the Los Angeles Dodgers. What caught many fans off guard is that $680 million of this amount will be deferred to after the 10-year contract is over. Now, what does that have to do with Fed-driven stock picks? Pretty much everything.

You see, the contract made headlines across various media platforms because it went against a simple reality: money today is worth more than money tomorrow. Therefore, a falling dollar index generally equates to reduced savings. However, by raising the benchmark interest rate, the Fed created the opposite scenario: money today is worth less than money tomorrow.

Of course, a return to normal will almost certainly impact stocks to watch post-Fed decisions. Essentially, it means that people will again be incentivized to do something, anything with their money. That’s good for consumption and ultimately good for equities.

With that, below are several stocks for a dovish Fed to consider.

Allstate (ALL)

Allstate Insurance officeSource: Jonathan Weiss / Shutterstock.com

As its commercial states, you’re in good hands with Allstate (NYSE:ALL). And that might be true even if those hands find themselves in a low interest rate environment. Indeed, lower borrowing costs might even be good for ALL, making it one of the stocks to watch post-Fed decisions.

First, let’s consider one of the core activities of insurance companies: building their portfolio in case the smelly stuff hits the proverbial fan. To accomplish this task, many players turn to fixed-income investments like government bonds. Well, if the Fed lowers rates, then the bonds that Allstate currently holds will be worth more. That’s because the newly issued bonds will feature a lower yield, thus making the older bonds more desirable.

Second, lower rates may boost the broader economic environment. Fundamentally, the thesis is that lower borrowing costs should spur greater expansion for businesses and also for would-be entrepreneurs to take the plunge. That all translates to requiring greater financial coverage, thus making ALL one of the Fed-driven stock picks.

Enphase Energy (ENPH)

mobile phone screen with Enphase Energy (ENPH) logo on it to represent renewable energy stocksSource: IgorGolovniov / Shutterstock.com

While more than a few sectors struggled last year due to the widely distributed pressure points in the economy, few suffered as much as the solar energy space. However, if the monetary policy paradigm shifts, then sector players like Enphase Energy (NASDAQ:ENPH) could be worth another look. If you want to speculate, ENPH could make an interesting idea for stocks for a dovish Fed.

Fundamentally, a major headwind for ENPH and the solar industry was the heightened borrowing costs. Of course, on the consumer end – whether we’re talking residential or commercial customers – higher interest rates meant higher financing costs. Along with the higher rates, the dollar index increased, meaning that commodities – priced in dollars – declined. So, with energy bills lower, that reduced the incentive for renewable energy solutions.

Also, rising rates meant greater challenges to businesses for their expansion or other financing needs. Thus, on both sides of the spectrum, ENPH and its ilk suffered. However, the mere prospect of interest rate cuts invigorated sentiment. Thus, I see Enphase as one of the high-potential Fed-driven stock picks.

PayPal (PYPL)

PYPL stock, PayPal logo overlays daylight photo of corporate buildingSource: JHVEPhoto / Shutterstock.com

A multinational financial technology (fintech) company, PayPal (NASDAQ:PYPL) was basically doing fintech before that term became popular. And to be sure, PYPL represented one of the post-pandemic darlings, skyrocketing higher following the 2020 doldrums. Unfortunately, PayPal could not sustain the stratospheric rise. Now, it’s incurring questions amid a rough economic backdrop.

However, if the central bank shifts the narrative to a decisively dovish stance, PYPL could be one of the stocks to watch post-Fed decisions. For example, while the mainstream understanding calls for three rate cuts this year, some investors believe policymakers will be even more aggressive. How so? How about six cuts worth a cumulative 1.25 percentage points beginning in March.

If such aggression materializes, that could juice the consumer economy. Essentially, the framework signals that people must do something with their money before it loses value. In particular, this narrative should benefit PayPal’s buy now, pay later (BNPL) business. As well, a greater shift toward entrepreneurial behavior could lead to boosted demand for its core fintech offerings. Thus, PYPL is one of the stocks for a dovish Fed.

Nike (NKE)

A stack of red Nike (NKE) shoe boxes.Source: mimohe / Shutterstock.com

At first glance, Nike (NYSE:NKE) might seem a terrible idea for stocks for a dovish Fed. While the sports apparel and equipment manufacturing giant posted earnings per share of $1.03, thus beating the 85-cent consensus target, the revenue was disappointing. It came in at $13.39 billion, below the $13.43 billion expected. Further, Nike unveiled plans to cut costs by about $2 billion amid a lowered sales outlook.

Obviously, these are datapoints that you don’t want to hear as a current stakeholder. However, from a purely speculative standpoint, you can make the argument that NKE has been de-risked. That might be attractive for those who were previously on the sidelines. And I’m not just saying that because of the red ink.

If you look at the personal saving rate, the metric increased from 3.3% in November 2022 to 4.1% in November 2023. That’s not surprising because during this period, money tomorrow would be worth more than money today. Thus, an incentive to save existed.

Moving forward, if the Fed goes with rate cuts, an incentive to spend may gradually take over. Given that Nike commands excellent pricing power (i.e. high gross margins), NKE is one of the stocks to watch post-Fed decisions.

AutoNation (AN)

Exterior of the Autonation Toyota car dealershipSource: RYO Alexandre / Shutterstock.com

Given the myriad financial pressures that many households found themselves under, AutoNation (NYSE:AN) might seem an odd idea for stocks for a dovish Fed. However, a monetary policy pivot – especially if it turns out to be more aggressive than expected – could bolster AN’s bullish narrative. Basically, AutoNation will roll up its sleeves during a tailwind.

In 2023, the average age of passenger vehicles on U.S. roadways hit 12.5 years, a fresh record. One of the contributing factors was of course the high cost of cars at the time. Combined with high interest rates, it didn’t make much sense for consumers to fork over so much cash or enter into a long-term financing contract. Therefore, drivers intended to keep their rides until the wheels fell off.

But should the Fed lower rates, people don’t need to be that draconian with their budgets. As stated previously, because the dollar will be worth less (all other things being equal) in a dovish environment, it makes sense to buy that replacement vehicle.

With the timing right for consumers, AN might be one of the Fed-driven stock picks.

ChargePoint (CHPT)

EV stocks: A close-up shot of a ChargePoint charging station.Source: YuniqueB / Shutterstock.com

Staying on the automotive theme, ChargePoint (NYSE:CHPT) presents an interesting backdrop for stocks for a dovish Fed. Specializing in public charging infrastructure development for electric vehicles, ChargePoint seemingly commands extraordinary relevance. After all, the future of personal mobility is electric. And not everyone has access to public charging and all that jazz. Unfortunately, it didn’t matter.

If you pull up a 52-week chart of CHPT, it’s downright ugly. Much of this centered on poor financial performances due to an unfortunate situation. Without getting bogged into the details, ChargePoint originally ran with a charging plug format different from that of Tesla (NASDAQ:TSLA). However, the Tesla standard quickly became the norm for the industry. ChargePoint had to scramble to accommodate but the damage was done.

Okay, but here’s the thing. It’s not as if ChargePoint lost all relevance because suddenly, everyone has access to a home garage. Further, if you believe in the wider adoption of EVs, public charging demand should likely only increase. It’s super-high risk, don’t get it confused. But if you want to speculate, CHPT could be one of the Fed-driven stock picks.

Canaan (CAN)

web browser showing Canaan (CAN) logo on websiteSource: shutterstock.com/Jarretera

If you’re asking which one is the riskiest idea among stocks for a dovish Fed, blockchain mining specialist Canaan (NASDAQ:CAN) or the just-mentioned ChargePoint, it’s a tossup. Both ideas could make you look like a contrarian genius if things go right. They could also make you look not particularly well-educated (to put it diplomatically) if you get it wrong.

Basically, if the Fed goes aggressive with its rate cuts – let’s say six of ‘em compared to the expected three – that should boost risk-on assets like cryptocurrencies. I’m repeating myself but the thesis is that the dollar would lose its value in the future. Thus, the declining-value narrative should incentivize speculation. After all, if you sit there and do nothing, you will lose.

Now, the tricky part about Canaan is that while it’s undervalued relative to its peers, there’s a reason for it. Unlike mining enterprises – which is an “operational” play – Canaan manufactures blockchain mining equipment, which is somewhat of a retail play. And mining equipment might face challenges due to greater interest in proof-of-stake protocols.

Still, hot demand exists for the “old school” cryptos. Thus, CAN could be an idea for stocks to watch post-Fed decision.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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