Inflation fell sharply in June, bringing major relief for both consumers and the Federal Reserve. The consumer price index (CPI), a key gauge for measuring the cost of goods and services across the nation’s economy, recorded its biggest decline in more than six years, the Commerce Department reported.
The decline in inflation is likely to alleviate fears of an interest rate hike by the Federal Reserve in the near term. Wall Street has remained volatile over the past few weeks, and the recent inflation reading is expected to boost investors’ confidence and bring some stability to markets.
Given this scenario, we recommend buying four consumer discretionary stocks, namely, American Outdoor Brands, Inc. AOUT, The Walt Disney Company DIS, MasterCraft Boat Holdings, Inc. MCFT, Steven Madden, Ltd. SHOO and Lionsgate Studios Corp. LION.
Inflation Finally Eases
CPI fell 0.4% sequentially in June, after increasing 0.5% in May and surpassing analysts’ expectations of a decline of 0.2%. Year over year, CPI fell to 3.5% in June, beating analysts’ expectations of a reading of 3.8%. The decline follows a reading of 4.2% in May. The monthly decline in CPI was the biggest since April 2020.
Core CPI, which strips out the volatile food and energy, remained unchanged in June, which came in better than the consensus estimate of a rise of 0.2%.
On a year-over-year basis, CPI fell to 2.6% in June, following a reading of 2.9% in May. Economists had expected core CPI to stay at 2.9%.
Oil prices, which surged after the U.S.-Iran conflict started in late February, eased substantially in June, following a temporary truce between the two warring nations. The energy index fell 5.7% in June, the biggest drop since April 2020.
Other components also fell substantially. Services costs, a key gauge for the Fed to assess future inflation trends, eased in June. Services, excluding energy costs, came in flat. Transportation services costs declined 0.3%, while apparel prices, which are directly linked to oil prices and tariffs, declined 0.6%.
The decline in inflation brings much relief to the Federal Reserve. Policymakers remained divided over whether the central bank should go ahead with a rate cut in their June policy meeting. Markets have also been bracing for a 25-basis-point rate cut by the Fed by the end of this year.
The Federal Reserve will now get more time to decide on its rate cut plans and will watch how inflation stays over the coming months. Lower interest rates will allow consumers to spend more freely and boost the economy.
5 Consumer Discretionary Stocks With Upside
American Outdoor Brands
American Outdoor Brands, Inc. is a provider of outdoor products and accessories, including hunting, fishing, camping, shooting and personal security and defense products, for rugged outdoor enthusiasts. AOUT produces products under the brands Caldwell, Crimson Trace, Wheeler, Tipton, Frankford Arsenal, Lockdown, BOG, Hooyman, Smith & Wesson Accessories, M&P Accessories, Thompson/Center Arms Accessories, Performance Center Accessories, Schrade, Old Timer, Uncle Henry, Imperial, BUBBA, UST, LaserLyte and MEAT!.
American Outdoor Brands’ expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 29.4% over the past 60 days. AOUT currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Walt Disney Company
The Walt Disney Company has assets that span movies, television shows and theme parks. Revenues were $91.4 billion in fiscal 2024. DIS’ fourth-quarter fiscal 2024 results reflect growth in Disney+ subscribers and Media and Entertainment Distribution businesses. Domestic theme park and resort businesses gained due to guest spending growth attributable to increases in per capita guest spending at theme parks and cruise lines.
The Walt Disney Company’s expected earnings growth rate for the current year is 15.7%. The Zacks Consensus Estimate for current-year earnings improved 0.9% over the last 60 days. DIS presently has a Zacks Rank #2.
MasterCraft Boat Holdings
MasterCraft Boat Holdings, Inc. designs, manufactures and markets recreational powerboats through its subsidiaries. MCFT’s operating segment consists of MasterCraft and NauticStar.
MasterCraft Boat Holdings’s expected earnings growth rate for the current year is 81.5%. The Zacks Consensus Estimate for current-year earnings has improved 0.6% over the past 60 days. MCFT presently carries a Zacks Rank #2.
Steven Madden
Steven Madden, Ltd. designs, sources, markets and sells fashion-forward branded and private-label footwear, accessories, handbags and apparel for women, men and children across the world. SHOO offers products under its owned brands, including Steve Madden, Kurt Geiger London, Dolce Vita, Betsey Johnson, Carvela, Blondo and ATM. It also licenses footwear, handbags and other accessories for the Anne Klein brand.
Steven Madden’s expected earnings growth rate for the current year is 22.9%. The Zacks Consensus Estimate for current-year earnings has improved 1.5% over the past 60 days. SHOO presently carries a Zacks Rank #1.
Lionsgate Studios
Lionsgate Studios Corp. is a content company. LION brings together diversified motion picture and television production and distribution businesses.
Lionsgate Studios’ expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 69.2% over the past 60 days. LION presently carries a Zacks Rank #1.
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The Walt Disney Company (DIS): Free Stock Analysis Report
Steven Madden, Ltd. (SHOO): Free Stock Analysis Report
Lionsgate Studios Corp. (LION): Free Stock Analysis Report
MASTERCRAFT BOAT HOLDINGS, INC. (MCFT): Free Stock Analysis Report
American Outdoor Brands, Inc. (AOUT): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).