Federal Reserve interest rate cuts are a boon to all stocks. But they are especially beneficial to certain names tied closely to housing and finance, as well as economic growth. We’re talking about the likes of Home Depot , Bristol Myers Squibb , and Capital One , which have all gained ground in August — roughly 11%, 8.5%, and 5%, respectively — as expectations of a Fed rate cut at the central bank’s September meeting ramped up. The market is putting over 85% odds on a cut, according to the CME FedWatch tool. The Fed has not moved rates since the three cuts at the end of last year. Fed Chairman Jerome Powell , under intense pressure from President Donald Trump to lower borrowing costs, said last Friday that conditions “may warrant adjusting our policy stance .” In his Jackson Hole speech, Powell said he still sees inflation risk from Trump’s tariffs, but he’s more concerned at the moment about the slowing labor market. Central bankers have been grappling for months about which part of their dual mandate — fostering stable prices and maximum employment — should be driving their decisions. In response to Powell’s dovish remarks, the stock market roared higher last week. The S & P 500 this week has been little changed. If the Fed’s September meeting does indeed usher in renewed rate cuts, the big question is whether the bond market will cooperate. When the Fed cuts rates, bond yields tend to go down, too. That’s important since, for example, mortgage rates take cues from the 10-year Treasury yield , which has declined somewhat since last Friday. Where it goes from here is crucial because the 10-year yield did fall to a low of about 3.5% in anticipation of last year’s rate cuts before reversing higher as inflation picked up. It has remained elevated — around 4.23% on Friday — keeping mortgages and other consumer debt costs elevated. While it is unclear how the Fed’s rate-cutting cycle will unfold, or if bond yields will follow their historical patterns, there are seven portfolio stocks, including Home Depot, Bristol Myers, and Capital One, that we believe are well-positioned to gain from a low-interest-rate environment. Housing Home Depot is our biggest winner from lower borrowing costs. If mortgage rates come down meaningfully below 6%, and there’s a rebound in the housing market, that means more demand for the home improvement giant. Usually, the first thing a new homeowner does is undertake remodeling projects, which is Home Depot’s sweet spot. In fact, lower rates are a key reason why the Club started a position in Home Depot in the first place. Candidly, this catalyst has not panned out as quickly as we hoped, in part, due to the bond market’s lack of cooperation. That being said, we’re not giving up on this stock yet. Home Depot has been leaning into its pro business, which tends to be less volatile than the do-it-yourself side of the house. DuPont will see upside to a key business if the housing market improves. The company’s Water & Protection reporting segment sells building materials that are directly linked to residential construction. It’s unclear, however, how much of Dupont’s sales come from these offerings. It’s one of three businesses within the Water & Protection segment, which accounted for 44% of the company’s overall revenues in 2024. If rates come down and the housing market picks back up, that could mean more demand for some of DuPont’s offerings. To be sure, the conglomerate has a sprawling portfolio of businesses, which helps diversify its revenue streams. The main catalyst for DuPont is its upcoming breakup. Financials Lower interest rates take pressure off the economy, which can lead to an increase in consumer spending and better credit and debit card metrics. That’s great news for Capital One , which is heavily tied to the health of the U.S. consumer. If borrowing costs come down, people will want to spend more with Capital One’s cards. This can, in turn, bring in more interest-based and fee-based revenues for the massive card issuer – both from merchants and those utilizing lines of credit. Capital One is also in the process of integrating Discover after completing its acquisition in May. Discover is also a big card issuer, but it also has a payment network, which we view as a major long-term competitive edge. Wells Fargo gets a lot of its revenue from interest-based income, which is at the mercy of the Fed’s monetary policy decisions. Wells stands to benefit because lower borrowing costs can cause a pickup in loan activity. That being said, management has made significant strides to expand its fee-based businesses, such as investment banking, which has further diversified its revenue streams. Wells Fargo also got the green light from regulators to expand. That’s because the Fed, back in June, finally removed its $1.95 trillion asset cap, which was put in place in 2018 following a series of scandals at the bank. Lower rates can also lead to more Wall Street dealmaking. That’s great news for Goldman Sachs, whose crown jewel is its investment banking division. Mergers and acquisitions (M & A) and initial public offerings (IPOs) typically pick up when there’s less macroeconomic uncertainty, which means more companies will turn to Goldman’s top-shelf IB services. The bank brings in money from these deals in the form of advisory and underwriting fees, to name a few. Dividend stocks Bristol Myers, which has a roughly 5.3% annual dividend yield, and Starbucks, which has nearly a 2.8% dividend yield, are key examples of stocks that can benefit from lower rates. Investors can turn to names with high, safe dividend yields, because they can be more attractive than Treasurys during periods of lower rates. That being said, these two companies don’t have high yields because of terribly large payouts, which do significantly increase each year with earnings, but rather weakness in their stocks. It’s important to note, however, the Club would never invest based on the dividend alone. In the case of Bristol Myers, the company’s new schizophrenia treatment Cobenfy has sales potential. We are awaiting the results of its next big trial before making a decision on the stock. Meanwhile, we remain upbeat on Starbucks CEO Brian Niccol’s turnaround plan for the coffee giant. (See here for a full list of the stocks in Jim Cramer’s Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
