Inflationary pressure continues to ebb, with U.S. producer prices declining for the first time since the beginning of the coronavirus pandemic. The Labor Department added that the producer price index (PPI) decreased by 0.5% in December, the biggest decline on a monthly basis since April 2020. On an annual basis, PPI did rise 6.2%, but that’s down from an increase of 7.3% in November. Notably, PPI registered an annual increase of 10% in 2021.
The decline in the cost of energy products, as well as food, was primarily responsible for the monthly decline in U.S. producer prices. Demand-supply disparity due to supply disruptions is normalizing, and thus price pressures are also lessening. Consumer prices in the United States have also begun to ease after touching a four-decade high last summer.
The U.S. Bureau of Labor Statistics noted that the consumer price index (CPI) jumped 6.5% year-over-year last month, down from November’s annual jump of 7.1%, and notched the smallest 12-month increase since October 2021. The CPI, on a month-over-month basis, dropped 0.1% in December, its first decline since the commencement of the pandemic. The fall in gasoline prices largely eased the cost of living and gave households a major relief.
From an investment perspective, cooling inflation bodes well for tech stocks. With inflation slowing down, market pundits now expect the Federal Reserve to curb the pace of interest rate hikes in the near term. It’s widely expected that the Fed will increase interest rates by only 25 basis points in February, that’s less than the 50-basis-point hike in December, which followed a three-quarter point rate increase four times successively.
Higher interest rates impact tech companies’ future cash inflows, curtailing their re-investments into innovation vis-à-vis growth prospects. Similarly, the decline in inflationary pressure has now boosted consumer sentiments. After all, a spike in inflation had earlier weighed on their real income and affected their living standards.
The preliminary result of the University of Michigan’s consumer confidence data showed that the consumer sentiment index jumped to a reading of 64.6 in January from December’s 59.7, its highest level since April. Additionally, gauges of the current economic conditions and short-term expectations too improved.
With sentiments improving on waning inflation, consumer discretionary stocks are poised to gain as well. This is because consumers’ propensity to buy nonobligatory items improves as their confidence in the strength of the economy grows amid a strong labor market.
Hence, we have highlighted four stocks from the tech and consumer discretionary sectors that are most likely to make the most of less inflationary pressure. These stocks carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Zscaler, Inc. ZS is one of the world’s leading providers of cloud-based security solutions. Currently, Zscaler has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has moved up almost 6% over the past 60 days. ZS’ expected earnings growth rate for the current year is 79.7%.
Axcelis Technologies, Inc. ACLS is a leading producer of ion implantation equipment used in the fabrication of semiconductors. Presently, Axcelis Technologies has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has moved up 8.5% over the past 60 days. ACLS’ expected earnings growth rate for the current year is 80.9%.
BJ's Wholesale Club BJ provides perishable, general merchandise and other ancillary services. BJ currently has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has moved up 0.3% over the past 60 days. BJ’s expected earnings growth rate for the current year is 16.6%.
International Game Technology IGT is engaged in the design, development, manufacture and marketing of casino-style gaming equipment, systems technology and game content. IGT currently has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has moved up 1.1% over the past 60 days. IGT’s expected earnings growth rate for the current year is 519.4%.
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