The cold hard message is sinking in. Higher rates are here to stay for longer than expected. Federal Reserve Chairman Jerome Powell has said multiple times that the Fed will be 'data-driven' when deciding on monetary policy. And the data has spoken. First, let's look at inflation. There has been great progress made in knocking inflation down from its peak of 9.1% in June of 2022. But achieving progress at the current lower levels, with inflation in the low-3% range, as expected, has been difficult. The Fed has been specific, saying inflation needs to be at 2% before restrictive policy will be eased. The Fed was patient after the January inflation data, and again with February data. But when March showed persistently higher prices, the Fed threw came right out and said that change can wait. Chairman Powell said the following last week. "The recent data have clearly not given us greater confidence..." and "If higher inflation does persist, we can maintain the current level of restriction for as long as needed." Now let's consider unemployment. The Fed again has been specific. Officials are looking for a 4.1% unemployment rate to gently (hopefully) slow the economy. Currently, the rate is not budging and is vacillating between 3.8% and 3.9%. Given the current macroeconomic backdrop, the following is a list of industries and companies we like that should benefit from a sustained period of higher interest rates. All are BUY-rated at Argus.

Two recent inflation reports indicated that overall pricing pressures have retreated from peaks in 2022. But both also signaled that inflation remains above the Fed's target of 2.0%. According to the latest Consumer Price Index (CPI) report, the overall inflation rate in January of 3.2% was higher than the prior month's 3.1%. That sour news was offset a bit by a drop in the core CPI rate, which excludes food and energy and eased to 3.8% from 3.9%. Two main factors are propping up CPI: Transportation Services (+9.9% YOY) and Shelter (+5.7%). These categories have prices that don't fall sharply. The other inflation report was the Producer Price Index (PPI), which measures pricing trends farther up the supply chain, at the manufacturing level. Here, we also saw a modest pick-up. The core final demand PPI rate for February was 1.6%, up 60 basis points month-over-month after having fallen from 4.4% a year ago. We have noted for months that making progress on inflation will be hard -- and nothing was overly alarming about either of the reports. Energy prices remain relatively subdued and prices at the PPI Intermediate demand level -- farther up the value chain -- continue to decline. We think the June 2022 CPI rate was the peak reading for the index this cycle, as the housing market cools, supplies of new vehicles are replenished, and the price of oil stays around $90. The Fed lifted the feds fund rate from 0.0% to above 5.25% over the past 18 months, and the hikes appear to be reducing inflationary pressures. We look for the U.S. central bank to be lowering rates in 2H24 as their concern shifts more toward economic growth.

Argus has published its latest Portfolio Selector, which features its popular Focus List. Each month, Director of Research Jim Kelleher, CFA, surveys the team of Argus Research industry analysts for their timeliest recommendations out of the company's fundamental universe of approximately 500 stocks. The Focus List typically includes 30 stocks: turnover is high, as Jim typically adds three or four new stocks per month. Below are the latest additions, all of which are rated BUY at Argus.

The Portfolio Selector features the Argus Focus List, a group of 30 "best idea" stocks generated and regularly updated by Argus' analysts and investment policy committee. It also includes the director of research’s monthly investment strategy column, stock recommendations and sector picks, economic forecasts, and an asset allocation model. This month, the Focus List additions are Capital One Financial Corp. (COF); Dominos Pizza Inc (DPZ); Novo Nordisk (NVO); Shell Plc (SHEL) and the Focus List deletions are Alcon Inc. (ALC); Expedia Group Inc (EXPE); Morgan Stanley (MS); Exxon Mobil Corp. (XOM).