Top 5 US-Focused Stocks to Exploit Higher Interest Rate Expectations


The Fed is on track for its June FOMC scheduled for June 14-15. Fed Chairman Jerome Powell announced in the May FOMC statement that the central bank would raise the benchmark interest rate by 50 basis points in June and July.

However, on June 13, The Wall Street Journal reported that Fed officials were seriously considering raising the lending rate by 75 basis points in June and July to combat rising inflation. Several leading investment bankers and economists agree with the WSJ report.

A higher interest rate regime has already increased the value of the US dollar in the international market. At this stage, it will be fruitful to invest in stocks of business-oriented domestic companies. Five of these actions are – Vista Corp. VST, Boot Barn Holdings Inc. BOOT, Meritage Homes Corp. MTH, J.Jill Inc. Jill and Bally’s Corp. BALY.

Higher interest rate to come

The Fed raised the federal funds rate by 25 basis points in March and by 50 basis points in May. The central bank ended the $120 billion-a-month quantitative easing program in March and began systematically reducing the size of its balance sheet by $9 trillion since June 2022. Still, inflation data show no signs of slowing down.

This had an immediate effect on the markets as the government bond yield curve flattened, mortgage rates climbed and the ICE US dollar index surged.
On June 14, the yield on the benchmark 10-year US Treasury rose 11.1 basis points to end at 3.483%. The yield on the 2-year short-term US Treasury closed at around 3.437%, climbing 16 basis points, marking its highest since 2007. The yield on the 30-year long-term US Treasury rose by 6 basis points to reach 3.428%.

Mortgage rates jumped this week. According to Mortgage News Daily, the average rate for the benchmark 30-year fixed mortgage rate rose 10 basis points on June 14 after jumping 33 basis points the previous day. On the same day, the rate closed at 6.28%, marking its highest level since the so-called taper tantrum of July 2013. The mortgage rate was around 5.55% just a week ago.

On June 14, the ICE US Dollar Index (DXY), which measures the strength of the greenback against a basket of six major currencies, rose 0.4% to 105.52, reflecting its highest level in nearly two decades. The anticipation of an aggressive interest rate hike by the Fed this year has made the US dollar very attractive to investors.

Why actions focused on the internal market?

Market participants fear that a rising dollar will hurt sales of US multinationals as their products will be more expensive in international markets. Commercially oriented domestic enterprises are mostly insulated from any external shock since the United States is the only market for their products.

Despite the recent economic downturn, aggregate demand in the US economy has remained strong. Americans have over $2 trillion in savings. The Fed is trying to calm demand by aggressively raising rates and reducing system liquidity to fight rising inflation.

In order to finance their expansion, these companies are less likely to take the debt route than their larger counterparts, making them less sensitive to interest rate fluctuations. This will help them outperform the broader market.

Our top picks

We narrowed our research to five U.S. stocks focused on domestic companies that have strong potential for the remainder of 2022. These stocks have seen positive earnings estimate revisions over the past 60 days. Each of our picks carries a Zacks Rank #1 (Strong Buy). You can see the full list of today’s Zacks #1 Rank stocks here.

The chart below shows the price performance of our five picks over the past three months.

Image source: Zacks Investment Research

Vista is an integrated power retail and power generation company. VST operates through six segments: Retail, Texas, East, West, Sunset and Asset Closure. The company retails electricity and natural gas to residential, commercial and industrial customers in 20 United States and the District of Columbia.

Vistra has an expected earnings growth rate of over 100% for the current year. The Zacks consensus estimate for current-year earnings has improved 11.2% over the past 60 days.

Operation of the starter barn is a chain of lifestyle stores devoted to western and work-related footwear, clothing and accessories. Additionally, BOOT offers gifts and homewares.

Boot Barn Holdings products include boots, jeans, western shirts, cowboy hats, belts and belt buckles, as well as western-style jewelry and accessories. BOOT also offers rugged footwear, outerwear, overalls, jeans and shirts, as well as safety toe boots and flame resistant, high visibility apparel. She sells her products through

Boot Barn Holdings forecasts earnings growth of 4.4% for the current year (ending March 2023). The Zacks consensus estimate for current-year earnings has improved 18.4% over the past 60 days.
Meritage Homes designs and builds single-family homes in the United States.

MTH benefited from increased demand stemming from the weak supply of new and existing housing. Meritage Homes’ strategy of targeting entry-level/first-stage buyers is gaining momentum and will continue to increase its long-term performance.

Meritage Homes forecasts profit growth of 42.7% for the current year. The Zacks consensus estimate for current-year earnings has improved 1.4% over the past 30 days.

J.Jill is a retailer specializing in women’s clothing. JILL offers sweaters, tops, pants, dresses, shorts, skirts, sleepwear and accessories. J.Jill markets through retail stores, website and catalog.

J.Jill expects earnings growth of 25.4% for the current year (ending January 2023). The Zacks consensus estimate for current year earnings has improved 19.2% over the past 7 days.

at Bally’s owns and operates casinos, racetracks and licensed OTB licenses primarily in Colorado. BALY properties include Twin River Casino Hotel, Tiverton Casino Hotel, Hard Rock Hotel & Casino, Casino Vicksburg, Dover Downs Hotel & Casino, KC Casino, Golden Gates Casino, Golden Gulch Casino, Tuesday Gras Casino and Arapahoe Park Racecourse.

Bally’s expects profit growth of 20% for the current year. The Zacks consensus estimate for current year revenue has improved more than 100% in the past 60 days.

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Boot Barn Holdings, Inc. (BOOT): Free Stock Analysis Report

Meritage Homes Corporation (MTH): Free Inventory Analysis Report

J.Jill, Inc. (JILL): Free Stock Analysis Report

Vista Corp. (VST): Free Stock Analysis Report

Bally’s Corporation (BALY): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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