The stock market has been on an absolute tear this year. But if you’ve been sitting on the sidelines, don’t worry. It’s not too late to make money… because a whole new phase of this bull market is about to begin.
We’re just two weeks away from what could be the most important event of the year: the Fed’s first interest rate cut in what feels like forever.
For months, the Fed has held interest rates “higher for longer,” even as the economy has started to creak under the pressure. They’ve stuck to this strategy despite inflation cooling considerably in the last six months, thanks in part to rising unemployment and a less confident consumer.
But it couldn’t last forever.
Now, the Fed is signaling dovish intentions, and the markets are starting to price in those cuts. Lower interest rates will likely lead to more spending, more investment, and a boost for certain parts of the market that have been held back by the Fed’s hawkish policies.
The first cut is expected to be a baby step – just a quarter point. But what comes next is the flood. The markets are now anticipating a series of cuts that take interest rates back to pre-COVID levels over the next year. And this transition is going to create some incredible opportunities to make money.
I call it the “Reflation Trade.”
It’s a strategy that focuses on stocks that directly benefit from lower interest rates: companies in industries primed for a resurgence in lending and spending. They’ve been beaten down and ignored in recent times but they are about to reclaim their dominance.
We’re about to see a wave of money flood into these stocks.
1. Zillow (Z): The Housing Market Is Reawakening
The housing market has been stuck in a deep freeze for two years thanks to those high interest rates. But as rates start to fall, we’re about to see a thaw. And my first reflation trade pick is Zillow (Z).
Think about it… lower mortgage rates mean more people can afford to buy homes. That means more buyers in the market, more competition for those homes, and – yes – higher prices.
Zillow is perfectly positioned to capitalize on this trend.
As Chris Johnson points out in his August 30 article for Money Morning, “Demand for homes will continue to exceed inventory for the next year as more buyers hit the market… But rising prices combined with lower interest rates are going to give those of us that have been waiting for the opportunity to ‘downsize’ our chance.”
He also highlights the “transactions” that will occur in the housing market as rates drop, arguing that companies like Zillow will benefit from increased homebuying activity. It’s a simple equation… more emails means more revenue for Zillow!
Johnson sees Zillow going to $80 in the coming months. I’m with him on this one. The stock’s technicals look strong, and with the refinancing boom about to kick into high gear, Zillow’s earnings should surge.
2. Rocket Companies (RKT): The Mortgage Magnet
Speaking of refinancing… our second reflation trade is Rocket Companies (RKT).
Remember two months ago when I said this company was set to explode higher? Well, it’s already gone up, but guess what… I’m raising my target price on this winner!
As Chris Johnson says, “Most of those transactions will include a bank or financial institution for the lending side of a home purchase.” And Rocket is the king of mortgage lending.
Think about it… as mortgage rates fall, Rocket will be inundated with new applications from homeowners looking to refinance their debt at lower rates.
Johnson’s previous target price for Rocket was $18. He’s already been proven right. Now, he’s seeing Rocket going to $25. The company’s earnings are set to explode higher.
3. SoFi Technologies (SOFI): More Bang for Your Buck Under $10
The reflation trade isn’t just about housing. It’s also about consumer spending. And my third pick for profiting from this theme is SoFi Technologies (SOFI).
This financial services company benefits directly from lower interest rates.
As Chris Johnson points out: “Sofi is in a class of stocks that are set to benefit from the upcoming drop in interest rates… Existing loans that were written at higher rates will now be able to receive some relief as consumers may be able to refinance to lower payments, avoiding default… Lower rates also means that banks and Fintech companies will see more new business activity.”
Sofi’s chart is also showing signs of a reversal. “[It’s] preparing to cross above its 50-day moving average, which has been in a bearish trend. A move above the $125.00 level is going to spark technical buying as the stock crosses above that important 50-day trendline.”
Johnson sees Sofi going to $10, and I agree… this stock is set for a major breakout in the coming months.
Don’t Wait, Get Ahead of the Curve
The “Reflation Trade” is about to kick into overdrive. Don’t miss this opportunity.
These three stocks offer a good starting point for building a portfolio that will benefit from lower rates and a stronger economy in the months to come.
Tomorrow, we’ll be taking a look at the tech sector, specifically digging into why you should IGNORE the current “Nvidia Carnage.” But don’t worry – I’ve identified an “under the radar” AI champion that could produce huge returns in the coming months.
