5 Stocks To Buy On A Dovish Fed Stance

The U.S. economy has begun to witness a turnaround from the jittery market conditions of the past few months, as evidenced by positive macroeconomic data.

Consumer confidence – a key determinant of economic health – rose dramatically in the month of August, indicating recovery after the dismal show in the first half of the year. The Chinese economy, which had been plagued by slow growth for the past few months, reported a 6.3% rise in industrial output in August, which was much better than expected.

Moreover, the Venezuelan government’s hints at a possible OPEC deal to freeze output were received well by early traders. Reflecting investor sentiments, West Texas Intermediate crude gained 39 cents to close at $43.69 a barrel on Tuesday. In addition, unemployment continues to stand at the last three months’ level of 4.9%.

Although these developments point toward a rate hike by the Fed, lower-than-expected recovery in some regions, Britain’s vote to exit the EU and the upcoming U.S. Presidential Election is contributing to the market volatility, while the strong dollar continues to hurt U.S. manufacturers by making their products costlier than their global peers. These factors may force the Fed to keep rates unchanged.

All eyes are on the Federal Reserve’s last meeting before November wherein officials plan to discuss the possibility of a rate hike in the near-term. Note that Fed Governor Lael Brainard has recently made dovish remarks about raising interest rates as the Fed first wants to ensure that the economy is on track to achieve its inflation target of 2% by 2018.

Selecting the Right Ones

In light of these factors, investors should invest their money in stocks that can outperform the market. A popular way of doing this is to select stocks with a high beta. These stocks are inherently more volatile than the markets they are trading in and represent options with higher upside potential.

The beta measures the extent to which the price of a stock moves with respect to the market. If the beta is equal to 1, it means that the stock is as volatile as the market. On the other hand, a stock is relatively more volatile if it has a beta greater than 1 and less volatile if its beta is less than 1.

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