Every time the Federal Reserve (the Fed) cuts interest rates, investors tend to flock to the sectors they believe will outperform the most due to historical reactions and fundamental reasoning. However, this rate cut is a bit different than the ones experienced in the recent past, as the United States economy is more globalized and a bit slower than before.
This will be a different case study, one in which rising credit card delinquency rates and spiking car repossessions will place a headwind in the consumer discretionary sector despite interest rate cuts, one that will slow down easier financing rates to boost the energy sector now that the 22-month contraction in the manufacturing PMI index drove business activity down, and one in which the dollar is as strong as it was during the COVID-19 pandemic.
Mixing these factors together, investors should focus on the effect of interest rates on company fundamentals rather than consumer or economic impacts since those may be a bit blurred in today's environment. By company fundamentals, the balance sheet is kept in the first place, especially the way lower interest expenses can affect utility stocks like Dominion Energy Inc. (NYSE: D) and dividend real estate investment trusts (REITs) like Brookfield Infrastructure Partners (NYSE: BIP).
Why Utility Stocks Thrive in a Low Interest Rate Environment
Typically, utility stocks carry more debt on their balance sheet than the average industry and, as a result, ...
