Why You Should Invest in High Buyback Stocks Ahead of Fed Rate Cuts: A Historical Analysis
As the Federal Reserve gears up to slash interest rates, savvy investors should zero in on high buyback stocks. Historically, these stocks have outperformed the market—even in the face of economic downturns and recessions. Here’s why you should consider loading up on these outperformers now.
The Power of Buybacks During Rate Cuts
Evercore ISI's latest macro note reveals that companies with a high buyback factor have consistently outperformed during rate cut cycles, boasting a 100% hit rate since 1990. This trend holds true regardless of whether the economy is in a recession or not. The phrase to remember? "When the Fed cuts, buy the buybacks."
Upcoming Rate Cuts and Market Implications
The Federal Reserve is anticipated to initiate its first rate cut next month, continuing this trend through 2025. The stock market's forward returns will largely hinge on whether these rate cuts coincide with a recession. Historically, market performance falters during downturns, but high buyback stocks have shown resilience.
Historical Performance: A Proven Track Record
Let’s examine past rate-cut periods:
- July 2019 – March 2020
- September 2007 – December 2008
- September 1998 – November 1998
- July 1995 – January 1996
During these times, high buyback stocks consistently outperformed other investment factors like dividends, growth, valuation, and leverage.
The Changing Landscape: What’s Next?
As the Fed shifts from a "high for longer" stance to a "new lower rate regime," the fall in yields may not provide the unequivocal "risk on" signal previously seen during the 10-year yield’s decline from 5%. However, high buyback stocks remain a robust investment strategy.
Potential Outperformers: Stocks to Watch
Evercore ISI highlights several high buyback stocks in the Russell 3000 that are also poised to benefit from AI advancements:
- Vertiv Holdings Co (NYSE: VRT)
- Apple Inc (NASDAQ: AAPL)
- Broadcom Inc (NASDAQ: AVGO)
Breaking It Down: What This Means for You
What is a Stock Buyback?
A stock buyback occurs when a company purchases its own shares from the marketplace, reducing the number of outstanding shares. This can increase the value of remaining shares and often signals that the company believes its stock is undervalued.
Why Focus on High Buyback Stocks?
High buyback stocks have a proven track record of outperforming the market during Fed rate cuts. This holds true even in recessions, making them a safer bet when market conditions are uncertain.
How Can This Affect Your Finances?
Investing in high buyback stocks could potentially lead to greater returns on your investments, particularly in the upcoming rate-cut cycle. By focusing on companies with strong buyback programs, you can enhance your portfolio's performance irrespective of broader economic conditions.
What Should You Do Next?
Consider adding high buyback stocks like Vertiv Holdings, Apple, and Broadcom to your investment portfolio. These stocks not only have a history of outperforming during rate cuts but are also positioned to benefit from emerging technologies like AI.
Conclusion
As the Fed prepares to cut rates, high buyback stocks present a compelling investment opportunity. Their historical outperformance during rate-cut cycles and resilience in recessions make them a smart addition to any portfolio. Stay ahead of the curve and consider these potential outperformers to maximize your investment returns.
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By focusing on high buyback stocks, you can navigate the upcoming economic shifts and safeguard your financial future. Happy investing!