Which Sectors, Industries and Stocks merit your full attention when interest rates fall?

Better-than-expected inflation data have increased the likelihood that the Federal Reserve will cut interest rates. This has shifted investor interest toward sectors that benefit more directly from lower borrowing costs, such as smaller, interest-sensitive growth companies.

The downright impressive recent rise in the Russell 2000 index-ETF IWM is a clear indication that many investors are primarily buying smaller players.

Focus on Consumer Discretionary, Real Estate and Financials

ChartMill allows screening down to the sub-industry level which makes it a lot easier to identify the strongest players. Below are three sub-industry groups that have performed exceptionally well in recent days.

Homebuilders (Consumer Discretionary Sector) have gone through tough times as mortgage loans became more expensive. As interest rates fall, borrowing will become cheaper again and demand for new homes may recover.

Through this link you can access a list of U.S. homebuilders (minimum price $3, minimum trading volume greater than 100,000 and with a market capitalization of at least $300 million) sorted by their performance over 1 week. Many stocks, meanwhile, are trading near their 52-week highs or have already reached new price stops in recent days.

This is the ideal time to compile lists of the top contenders. Some ideas to get you started:

• Which stocks are the market leaders in their sector? (Direct link to list sorted by relative strength)
• How have they performed in recent weeks/months? (Direct link to list sorted by 1-month performance)
• How is their financial health? (Direct link to list sorted by ChartMill Health Rating)
• How are sales and earnings trending, what are the profit margins? (Direct link to list with the addition of the earnings table below the chart) (available to subscribers only).

A group of stocks with similar effects is also noticeable in Real Estate Services (Real Estate Sector), direct link here.

A final example is Regional Banks (Financial Sector) (direct link) where all 123 stocks in the list (screen from this article dated 24/07/18 before market opening) posted price gains based on the past month.

When To Buy?

Many of the stocks mentioned above have risen significantly in recent days, so buying now and running after the price is certainly not a good idea.

Based on your initial analysis using some performance parameters as shown above, you can add the most interesting stocks to a specific list for a deeper investigation.

The stock's profile page is the best starting point for this. It provides access to a wealth of information such as the estimates, analyst ratings, the company's financials and even ready-made summarized fundamental and technical reports developed by ChartMill itself.

A period of sideways price movement and slightly lower volatility are ideal conditions to take positions with relatively little risk and anticipate a continuation of the positive trend.

As an example, I show a stock from my own private portfolio that I have held since May 28, 2024, ROBINHOOD MARKETS INC (HOOD). The entry was made after an initial rise where the price briefly tested the SMA(10) and immediately rebounded after which I opened a long position the following day.