The recent inflation report came in cooler than expected at 2.8% in February, from 3% in January. It’s still higher than the Federal Reserve’s target of 2%, but it’s low enough for the Fed to start cutting interest rates again. Interest rate cuts were previously paused due to inflation holding moderately high, but now that it has started going down again, the market is betting that rate cuts will resume in June, especially due to continuous pressure from the Trump administration.

It’s still worth mentioning that they may not happen. Tariffs are still causing a lot of uncertainty for the U.S. economy, and they can drive inflation up. The University of Michigan sees inflation at nearly 5% a year from now. This is much higher than the Fed’s own estimate of 3.1%. But it’s not a bad argument that the Fed could cut rates nonetheless due to the negative GDP forecast and its own data that shows tolerable inflation a year out.

Here are 2 stocks that could benefit from a June rate cut.

AbbVie (ABBV)
AbbVie (NYSE:ABBV) is a pharmaceutical company. It is one of the most consistent names on the stock market and is a solid long-term pick, even without rate cuts. However, rate cuts can boost its fundamentals significantly.

As of Q4 2024, AbbVie had a debt load of $67.144 billion, mainly due to its previous acquisitions. Rising interest rates have made the company’s bottom line figures look much less attractive as servicing it became more expensive over the past three years, but recent rate cuts could help it make a significant recovery.

Net interest expense was -$610 million in just Q4 2024 alone. For all of 2024, it was -$2.2 billion. In comparison, net income was $4.3 billion. Rate cuts will directly translate into a bottom-line boost for this company.

Analysts expect EPS to grow 21.3% this year, along with 5.38% sales growth. You are paying 17 times forward earnings, but if significant rate cuts boost earnings, the stock can still deliver upside.

Ford Motor (F)

Ford Motor (NYSE:F) has underperformed the broader automotive market significantly and is down over 60% from its peak in early 2022. However, there’s a good chance that it is bottoming out.

Tariff wars are adding a lot of uncertainty to the automotive industry, but considering you’re paying less than 7 times earnings for F stock, it’s hard to see this stock lower. On top of that, electric vehicle companies are looking a lot less attractive. A major portion of Tesla’s customer base is now unlikely to buy cars from Tesla due to political reasons, and Trump pulling away EV subsidies could make them even more unattractive.

If you add in rate cuts on top of that, this might be enough to trigger a major recovery rally. Ford does have a lot of debt, but it has financing operations that offset the increased interest costs. In fact, net interest income was actually positive for all of 2024 at $404 million. This is a considerable amount of its $5.9 billion net income figure.

The main benefit would be from increased demand for cars. Current interest rates make big-ticket purchases hard to swallow, especially if it involves taking a loan. Lower interest rates would stimulate demand significantly. Ford peaked right about when interest rates started getting hiked, so I believe if rate cuts accelerate this year, we could see the stock move up as it did in 2021.

Ford’s strong-selling trucks and SUVs dominate its portfolio and would be well-positioned to sweep more market share if rates were lower.

— Omor Ibne Ehsan

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Source: Money Morning