As investors prepare for the upcoming Federal Reserve meeting, CNBC Pro has identified stocks that have historically performed well when interest rates are reduced without triggering a recession. According to CME’s FedWatch Tool, Fed funds futures have fully factored in that the central bank will cut interest rates. The primary question now is the magnitude of the anticipated reduction. Despite ongoing concerns about a slowdown in consumer spending and the white-collar job market, the economy has remained resilient during this monetary tightening cycle. Many analysts now anticipate that the Fed will achieve the desired “soft landing,” controlling inflation without pushing the economy into a recession.
Historically, rate cuts in the absence of a recession have benefited stocks. Research by Canaccord Genuity indicates that the S&P 500 has gained an average of over 18.5% in the year following the Fed’s first rate cut in such conditions. In scenarios that included a recession, the increase averaged just over 11%.
With this context in mind, CNBC Pro conducted a screening of S&P 500 companies to identify those with the highest median gains one year after the Fed lowered rates without a recession. The following are the top 10 gainers:
Nike leads the list with a median gain of over 87%, which could indicate a turnaround after a challenging year. Nike’s shares have fallen more than 27% in 2024, making it the third worst-performing stock in the Dow Jones Industrial Average so far, behind Intel and Boeing. Despite this, analysts polled by LSEG forecast a more modest upside of approximately 15.5% and maintain a buy rating on the stock.
Walmart also features prominently with a median gain of nearly 51%. The retailer is the top-performing Dow member for 2024, having surged 53%. Despite this strong performance, analysts surveyed by LSEG expect the stock to remain relatively flat over the next year but continue to rate it as a buy. Citi reiterated its top pick designation for Walmart last week, a title the stock has held for over two years. Analyst Paul Lejuez noted that while management has executed well, there remain ample opportunities for improvement.
Lastly, Paychex, a lesser-known entity, also made the list. The human resources platform provider has achieved a median gain of 51.5% in the 12-month period following the first non-recessionary rate cut. Based in Rochester, New York, Paychex is predominantly rated as a hold by analysts according to LSEG. After an almost 14% increase this year, Wall Street anticipates the stock will decline by more than 10% over the next 12 months.
