The hope of three rate cuts in 2024 took a backseat with the Federal Reserve reporting a higher-than-expected inflation number for March.
Tradingbiz analyst Rahul Nambiampurath identified the 0.4% increase from February as a chance to place short-term bets on key sectors, including Healthcare, Energy and Commodities, Consumer Staples, and others.
The logic behind sectoral strength
The increase in the inflation rate, currently standard at 3.5%, strengthens the U.S. dollar, affecting key sectors based on their operations. For instance, multinational corporations that derive a sizable sum of their revenue from outside the country can face headwinds if and when the dollar strengthens.
Net importers can benefit in the long run. Exporters, on the other hand, can see their goods become more expensive to foreign buyers, resulting in reduced margins.
Based on this rationale, Rahul believes several players can momentarily correct, allowing new buyers to flock to the space. Here are some of his picks for holding mid-term:
- Alphabet (GOOGL): Focus on revenue generated from the International Markets and, therefore, expected to correct.
- Coca-Cola (KO): A stronger dollar can make the products more expensive in the global markets, impacting foreign income, significantly.
- McDonald’s (MCD): Can get impacted as the translated earnings from the international shores might take a hit.
Interested in going long? Here are the key bets
The stocks Rahul mentioned earlier can be mid-term potential buys. However, if you are interested in short-term bets, Rahul mentions the following stocks and sectors:
- AvalonBat Communities and Prologis (PLD): REITs, which can be quick hedges against rising inflation.
- Pfizer (PFE): As healthcare would maintain demand even with the rising prices
- Bank of America (BAC): It could benefit from net interest margins in a high-interest-rate environment.
The daily price chart of BAC hints at an uptrend, with the stock up 8.11% in 2024. BAC is currently trading closer to the $36.5 level, with strong resistance present around the $40 mark. Even though the RSI seems to be making higher highs, it has moved to the overbought zone, indicating a quick yet harmless correction.
Bank of America daily chart: TradingView
At $32.90, BAC gives buyers new entries, provided the target in the short-term, towards $40. Betsy Graseck, Analyst at Morgan Stanley, has also upgraded BAC to the Overweight status, pushing the price target to a $32-$41 range.
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