The Federal Reserve is expected to cut rates at its upcoming September meeting next Tuesday.

With rates heading lower, some sectors will perform better than others.

The reason these sectors will benefit is because lower interest rates reduce borrowing costs, which boosts consumer spending and business investment.

Here are 8 places to look if you want to make hay while the Federal Reserves adopts a lower rate policy.

1. Real Estate

• Residential: Lower mortgage rates make it cheaper for individuals to buy homes, increasing demand and stimulating growth in the housing market.
• Commercial: Lower interest rates reduce financing costs for real estate developers, encouraging investments in new projects.

2. Financials (Especially Banks and REITs)

• Banks: Banks may initially face pressure on their net interest margins (the difference between what they earn from loans and what they pay in interest on deposits). However, lower rates often boost loan demand, especially for mortgages, car loans, and business credit, which can benefit banks overall.
• Real Estate Investment Trusts (REITs): Lower borrowing costs allow REITs to finance properties more cheaply, increasing profitability. Additionally, as investors seek yield, REITs become more attractive due to their high dividend yields.

3. Consumer Discretionary

• Low interest rates increase disposable income by reducing borrowing costs for consumers on credit cards, auto loans, and personal loans. This sector includes companies selling non-essential goods and services such as automobiles, entertainment, retail, and travel, which typically benefit from increased consumer spending.

4. Utilities

• Utility companies typically have high capital expenditures, often funded by debt. Lower rates reduce borrowing costs, making it easier to invest in infrastructure. Additionally, since utilities offer stable dividend yields, they become more attractive to income-seeking investors in a low-rate environment.

5. Homebuilders

• Homebuilders benefit directly from the increased demand for housing, as lower interest rates make mortgages more affordable. This leads to more home purchases, boosting the construction and real estate development sectors.

6. Technology

• Many tech companies are in growth phases and rely on borrowing to finance expansion. Lower interest rates reduce borrowing costs, enabling these companies to invest more in innovation, research and development, and acquisitions. Additionally, as investors move away from low-yielding bonds, they often turn to high-growth tech stocks.

7. Consumer Staples

• While typically more defensive, consumer staples may benefit indirectly from lower rates as consumers have more disposable income and are more willing to spend on everyday goods, even if these goods aren’t particularly discretionary.

8. Automobiles

• Car manufacturers and dealers benefit from increased demand for vehicles as consumers take advantage of lower financing rates for car loans, making cars more affordable and increasing sales.

YOUR ACTION PLAN

Lower interest rates will give us plenty of buying opportunities in The War Room from these eight sectors. We’ll be picking our points on all of them in real time. You’re going to want to be there when we do.

To learn more about The War Room, click here.