The Fed Just Cut Interest Rates: 3 Stocks to Buy Hand Over Fist

It’s been over four years without an interest rate cut from the Federal Reserve. That changed on Wednesday, when the Fed cut rates by an unexpectedly high 0.5%.

Initial reactions from investors were muted. However, the stock market rose on Thursday as they digested the impact of the big rate cut. Even better, the Federal Open Market Committee indicated that interest rates could be cut by another 0.5% by the end of the year.

The Fed’s move could be just the ticket to inject more power into the bull market that began in late 2022. And it presents a great opportunity for investors. Here are three stocks to buy with a bang.

1. Dominion Energy

Utility stocks are usually boring. They go a long way, primarily attracting income investors. However, it was a much different story for many utilities in 2024. Dominion Energy (D 0.12%) is a great example. The stock is up more than 20% year to date.

I think the Fed’s rate cuts will further boost Dominion Energy’s stock price. Lower rates translate into lower borrowing costs. That’s great news for Dominion, which has about $8.3 billion in debt maturing in the next three years and a $6 billion credit facility.

Bond yields also fall when rates fall, prompting many investors to seek higher income. Dominion Energy looks like a great alternative with its forward dividend yield of around 4.7%.

Action is even an unlikely way to profit from the artificial intelligence (AI) boom. Dominion Energy serves Northern Virginia, a region that is a world leader in data centers.

2. DR Horton

Dr. Horton (DHI 1.48%) it didn’t need lower interest rates to deliver amazing gains. The homebuilder’s shares are up nearly 30% this year after soaring 70% in 2023.

Make no mistake, though: the rate cuts will help DR Horton considerably. Mortgage rates typically fall in line with interest rates, and when they do, new homes are more affordable. This is music to the ears of DR Horton shareholders.

DR Horton ranks as the largest US homebuilder by volume. The company operates in 121 markets in 33 states and closed on 94,255 homes during the 12 months ended June 30, 2024. If any stock benefits from lower mortgage rates as a result of the Fed’s move, DR Horton will.

There is also a major long-term headwind for DR Horton. Fannie Mae estimates that the country needs about 4.4 million new homes, which is close to Zillowthe recent estimate of 4.5 million. The only solution to this shortage is to build new houses.

3. Real estate income

Real estate income (A -2.40%) it hasn’t been a big winner in 2024. Its share price is in positive territory so far, but not by much. However, this real estate investment trust (REIT) has been hot over the past 12 weeks, with much of the momentum due to anticipation of interest rate cuts.

REITs are similar to utility companies in some ways. Both typically take on debt to finance expansion and often offer juicy dividends. As a result, REIT stocks and utility stocks tend to be very sensitive to interest rates.

I think lower rates will make Realty Income even more attractive to income investors who are ditching bonds. The REIT’s forward dividend yield is 5.2% and Realty Income pays dividends monthly. Even better, the company has increased its dividend for 27 consecutive years.

Like Dominion Energy, Realty Income should benefit from increased demand for AI. The company sees the data center market as a profitable growth opportunity. It is also looking to expand into Europe, which has an estimated total market of $8.5 trillion.