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Lower Rates, Higher Returns: Key Stocks to Watch Now

Interest rates determine the risk and reward perceptions of virtually all asset classes in the financial market. The benchmark for return is—and has always been—the United States ten-year treasury bond yield, so when bond yields are high, investors tend to avoid higher-risk assets like stocks, as the risk is not worth it compared to bond yields.

Now that the Federal Reserve (the Fed) has lowered interest rates by the most since 2007, investors may think that lower returns could be ahead, especially now that the S&P 500 has priced in most—if not all—of the potential effects these interest rate cuts have on the economy. Understanding that new money will shift into different market areas is key. Still, it all begins with knowing what interest rates will do in the coming quarters.

Sectors that typically have higher debts on their balance sheets are poised to benefit from lower interest rates. Lower interest expenses on that debt would drive up net income and earnings per share (EPS). For this reason, investors can find higher returns in sectors like consumer discretionary and the real estate sector.

Top Consumer Discretionary Stocks Poised for Higher Growth Ahead

This is one sector that could benefit from a double tailwind as interest rates work their way through the economy. Still, not all consumer discretionary stocks are made equal. This is going to be the case, especially for those with a smaller market capitalization and higher debt.

Analysts Expect Abercrombie's EPS to Jump 14.5% by 2025

Fitting this list, investors can ...