The S&P 500 and Nasdaq extended their record rallies this week after consumer inflation data came in better than expected Wednesday morning. While the Fed's rate cuts would likely benefit the broader stock market, several names in the CNBC Investing Club portfolio (from real estate projects to autos and biotech) could really get a boost. Connecting the dots here: May's consumer price index was released before the opening bell rang on Wall Street, just hours before the Federal Reserve wrapped up its two-day June policy meeting. The unchanged month-on-month CPI reading came after several months, showing that inflation was not going to be defeated so easily. During his post-meeting press conference, Federal Reserve Chair Jerome Powell highlighted that more progress still needs to be made in reducing the inflation rate before we see our first rate cut. This time the Federal Reserve ended up keeping rates stable again. While central bankers analyze inflation to help determine the appropriate level of borrowing costs, it is important to consider how each of these factors (inflation and rates) impact consumers' purchasing power. Inflation is the rate of increase in prices over time. Interest rates have to do with the cost of money. Inflation indicates what's happening in terms of list prices, while interest rates determine whether borrowers can afford higher-priced things, like cars and homes, which typically require some type of financing agreement. Housing We see Stanley Black & Decker as one of the main beneficiaries of the Federal Reserve's rate cuts due to its connection to the housing market. This is not because lower rates make the tools much more affordable (there is generally no need to finance a power tool), but because of what drives consumers to go out and buy these tools. It is the big purchase, the house, that catalyzes the demand. Cheaper mortgages and lower prices will drive home buying. That means more home construction, which would give Stanley more business on the professional side. More homeowners also mean more potential buyers of the type of tools needed to fix things around the house and embark on renovation projects. That housing formation dynamic should also provide incremental boosts to companies like Best Buy and off-price retailer TJX, through their HomeGoods and HomeSense brands. After all, once you buy that new home, you'll probably need to furnish it. That's TJX. You're also likely looking for upgrades to appliances and home electronics. That is the best purchase. Both retailers could also see people willing to spend more because they're spending less to borrow on those larger purchases (less interest), leaving more discretionary dollars in their pockets. Banks Speaking of financing, we have to consider the banks that actually grant loans. However, the benefits of lower rates are less clear. For one thing, lower rates mean a bank like Wells Fargo makes less money on the money it lends. But on the other hand, Wells Fargo could very well lend more as demand for loans increases. While we will have to see how it pays off in terms of interest income, we believe that increased demand for borrowing and stronger economic activity bodes well for banks. Ultimately, a healthier economic environment with money continually flowing is a good thing. Our other financial stock, Morgan Stanley, has been hurt by higher rates as many clients shifted cash in search of higher returns. As rates decline, we should see some of that dynamic reverse. Morgan Stanley also has a strong investment banking business that would be helped by lower rates driving IPO underwriting demand and M&A fees. Biotech Danaher should also see some benefit as lower rates lead to better financing dynamics for biotech companies. A pullback in biotech funding, plus the collapse of Silicon Valley Bank, hampered demand for Danaher's portfolio of biologics. SVB was a major source of capital for biotechnology companies. So, as venture funding returns and more biotech companies look to go public, we should also see demand for biologics increase. Cars Another winner of the portfolio would be Ford. For most people, buying a car means borrowing money at a certain rate and paying it back in a few years. As with housing, monthly payments become much more manageable at lower rates and therefore affordability and demand can increase. Ford has been moving away from money-losing all-electric vehicles and devoting more resources to high-margin hybrids. Monthly sales figures confirm the wisdom of this strategy. Any help on the rates front to make cars more affordable could boost a business already heading in the right direction. Enterprise Palo Alto Networks excels on the enterprise side. In recent quarters, the cybersecurity giant has said that its customers (large and small companies) have tried to adjust payment terms due to higher financing costs. While it's not a demand issue, we could certainly see changes in the tone and pace around dealmaking and deal sizes as companies feel better about cheaper borrowing costs. Salesforce, which has also highlighted more measured deal activity, may not benefit as much from lower fees. We're still trying to determine how much of the headwind is funding rates versus customers realizing they can achieve similar results by leveraging generative AI tools from Salesforce rivals like Microsoft. (See here for a complete list of Jim Cramer's Charitable Trust holdings.) 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 fund'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 INVESTMENT 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 THE RECEIPT OF ANY INFORMATION PROVIDED IN RELATION TO THE INVESTMENT CLUB. NO SPECIFIC RESULTS OR BENEFITS ARE GUARANTEED.
Stanley Black & Decker power drills are displayed for sale at a Home Depot store in Colma, California.
David Paul Morris | Bloomberg | fake images
He S&P 500 and Nasdaq extended their record rallies this week after consumer inflation data came in colder than expected on Wednesday morning. While the Fed's rate cuts would likely benefit the broader stock market, several names in the CNBC Investing Club portfolio (from real estate projects to autos and biotech) could really get a boost.
