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U.S. consumer sentiment, which had hit rock bottom on fears of an impending recession, bounced back in August as inflation cooled and hopes of a rate cut by the Federal Reserve in September brightened.

The University of Michigan’s preliminary consumer sentiment index rose to 67.8 in August from the final reading of 66.4 in July, surpassing analysts’ expectations of a reading of 66.9.

The survey’s outlook for inflation expectations over the next year remained unaltered at 2.9%. The sub-index tracking inflation expectations over the next five years was also unchanged at 3% for the fifth straight month.

Given this situation, investing in large-cap growth funds like Fidelity Series Blue Chip Growth Fund (FSBDX - Free Report), Janus Henderson Research A (JRAAX - Free Report) and T. Rowe Price Lrg Cp Gr I (TRLGX - Free Report) would be a wise decision.

Inflation Fears Alleviate 

The rebound in consumer sentiment comes after it hit an eight-month low in July on growing fears that stubborn inflation could push the economy into a recession in the near term. Also, a spike in the unemployment rate and a disappointing July jobs report gave an impression that the Federal Reserve may have delayed too much in starting rate cuts.

However, a decline in jobless claims in the past couple of weeks and inflation has eased those fears, and market participants now believe that the economy is still holding strong.

Also, the Federal Reserve Federal Open Market Committee’s (FOMC) July meeting revealed that the central bank is likely to start interest rate cuts in September. The Fed is anticipated to cut interest rates by 25 basis points as it feels that inflation is declining steadily and is on track to achieve its 2% target.

Markets are pricing in three rate cuts of 100 basis points this year. Low interest rates typically help growth assets as they reduce the opportunity cost of holding assets that don’t generate yields. In an environment with lower interest rates, investors are more likely to pursue assets that offer higher potential returns, even if they carry more risk.

3 Best Choices

We have, thus, selected three large-cap mutual funds that carry a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy) and are poised to gain from the Fed’s rate cuts. Moreover, these funds have encouraging three and five-year returns. The minimum initial investment is within $5000.

We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors in identifying potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance but also on the likely future success of the fund.

The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolio without several commission charges that are associated with stock purchases are primarily why one should be parking money in mutual funds.

Fidelity Series Blue Chip Growth Fund invests in common stocks of blue-chip companies that generally have large or medium-market capitalization. FSBDX is non-diversified.

Fidelity Series Blue Chip Growth Fund (has a track of positive total returns for over 10 years). Specifically, FSBDX’s returns over the three and five-year benchmarks are 8.8% and 21.4%, respectively. FSBDX has an annual expense ratio of 0.01%.

Janus Henderson Research A fund is part of the Large Cap Growth mutual fund category. JRAAX invests in many large U.S. companies that are expected to grow much faster than the other large-cap stocks.

Janus Henderson Research A fund has had a track of positive total returns for over 10 years. Specifically, JRAAX’s returns over the three and five-year benchmarks are 8.7% and 16%, respectively. The fund’s annual expense ratio is 0.83%.

T. Rowe Price Lrg Cp Gr I fund seeks to provide long-term capital appreciation through investments in common stocks of growth companies. TRLGX normally invests at least 80% of net assets in the common stocks of large companies.

T. Rowe Price Lrg Cp Gr I fund has a track of positive total returns for over 10 years. Specifically, TRLGX’s returns over the three and five-year benchmarks are 5.4% and 15.9%, respectively. The annual expense ratio of 0.56% is lower than the category average of 0.94%. TRGLX has a Zacks Mutual Fund Rank #1.

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