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The Fed Remains Firm on Three Rate Cuts This Year: 5 Tech Gems to Explore

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Mar 20 marked the latest FOMC meeting where the Fed chose to maintain the benchmark lending rate between 5.25-5.5%. This steady range has held since July 2023, hitting a remarkable 23-year peak. Speculation has been rife in 2024 on when the central bank would make its first interest rate cut of the year.

Concerns had mounted among financial experts about the potential rate cut due to persistent inflation, bolstered by a robust labor market, rising wages, and strong consumer spending trends. However, to the relief of investors, the Fed reiterated its intent to enact the number of interest rate reductions foreshadowed during the December FOMC session.

The recently published Fed’s β€œdot-plot,” showcasing projections from 19 anonymous FOMC officials, projects the benchmark lending rate to fall to 4.625% by the end of 2024. The current mid-point of the Fed fund rate stands at 5.375%, indicating three anticipated 25 basis points rate cuts.

Fed Chairman Jerome Powell, in his post-FOMC address, hinted at a potential policy shift. He remarked, β€œWe believe that our policy rate is likely at its peak for this type of cycle, and that if the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year.”

After the March FOMC decision, the CME FedWatch tool indicated a 75% probability of the first rate cut happening during the June FOMC meeting. This probability had stood at 60% just before Powell’s post-FOMC announcement.

In the aftermath, Wall Street basked in fresh highs. The S&P 500 soared, reaching 5,224.62 and hitting an all-time high of 5,226.19. The Dow Jones notched up an all-time peak of 39,529.13 and a closing high of 39,512.13. The Nasdaq Composite surged to a new apex at 16,369.41.

Tech Sector Growth Prospects

Despite lofty valuations, the tech sector is primed for further acceleration in 2024 as lower interest rates typically fuel growth stocks like those in technology. Investing in such stocks can lead to wealth accumulation over the long haul.

A reduction in market interest rates will shrink the discount rate, thereby augmenting the net present value of investments. Additionally, many tech firms rely on credit sources for business expansion.

The tech surge since 2023’s outset was spearheaded by a robust push towards artificial intelligence (AI), notably generative AI. The widespread adoption of digital tools and the internet globally during lockdowns spurred considerable AI uptake.

The realm of AI in the U.S. and international markets is poised for further growth, promising substantial business prospects for tech firms crafting top-tier products.

Our Standout Selections

Our quest narrows down to five tech giants (with market cap exceeding $35 billion) boasting double-digit YTD returns. These firms flaunt a robust business framework, financial stability, and globally recognized brand prowess.

These chosen stocks exhibit significant growth potential for 2024 and have garnered positive earnings forecast revisions in the last 30 days. Not to mention, each pick carries a Zacks Rank #1 (Strong Buy). A comprehensive roster of all the latest Zacks #1 Rank stocks can be perused here.

The chart below delineates the year-to-date price performance of our chosen quintet.

Zacks Investment Research
Image Source: Zacks Investment Research

NVIDIA Corp. is riding high on Compute & Networking revenues, buoyed by the thriving AI landscape and accelerated computing. The data center sphere stands poised for growth with the rising demand for generative AI and large language models utilizing NVIDIA’s Hopper and Ampere architectures.

Hyperscale demand spikes and increased sell-ins to partners across Gaming and ProViz end markets, post-channel inventory normalization, are bolstering NVDA. Collaborations with Mercedes-Benz and Audi are slated to bolster NVDA’s footprint in autonomous vehicles and automotive electronics.

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