Risk-on! The stock market is widely expected to takeoff like a rocket once the U.S. Federal Reserve finally begins lowering interest rates. If that happens, investors’ risk appetite is sure to increase, with certain stocks catapulting higher as a result. The last time markets got frothy in 2021, it led to record high prices for crypto, the meme stock craze, and a resurgence of public stock offerings through special purpose acquisition companies (SPACs). What is likely to happen this time once interest rates decline?
If history is any guide, markets are likely to go into overdrive as the central bank eases up on its finance-tightening regime. Lower interest rates are coming. The only question is timing. With inflation proving sticky and the economy remaining strong, Wall Street has been forced to adjust its expectations for rate cuts. Future traders now expect the Fed to cut interest rates only two times this year, with the first rate cut likely to occur in September. A few weeks ago, traders saw three rate cuts with the first one happening in June.
Regardless of the timing, it’s never too early to prepare one’s portfolio for a market surge. Here are rate cut rockets: three stocks to soar when interest rates fall.
Robinhood Markets (HOOD)
If markets do takeoff as interest rates are cut, then Robinhood (NASDAQ:HOOD) will be a very good stock to own. HOOD stock has enjoyed large gains over the past year as the bulls took control of the stock market. In the past 12 months, Robinhood’s share price has risen 83%, including a 48% increase so far this year. The company’s stock has been flying high as trading volumes skyrocket on its app and online platform. Going forward, trading activity is likely to increase.
Robinhood Markets is doing its best to make hay while the sun shines, growing the services it offers primarily to individual investors. In March, the company launched a new credit card as part of its expansion beyond a core business of online stock trading. Management says the goal is for Robinhood to morph into a financial services company and move beyond its roots as a commission-free trading firm. The Robinhood Gold Card has no annual cost or foreign-transaction fees and offers 3% cash back on all purchases. There’s even a version of the credit card made of 10-karat gold.
GameStop (GME)
A riskier stock that could make a comeback if the market gets frothy again is GameStop (NYSE:GME). The troubled video game retailer thrived the last time the market peaked in 2021, becoming the signature meme stock and a favorite of the WallStreetBets crowd that tried to push GME stock “to the moon.” After rising more than 400% in only a few weeks, GameStop has since crashed back down to earth, currently trading 86% lower than its 2021 all-time high. But the stock could come back if the market rockets higher again.
GameStop has been brought low in recent months by a string of disappointing earnings. The company’s business model of selling video games through a chain of retail outlets now seems antiquated. GME stock fell 17% in one day after the company’s last earnings print, which showed weak financial results. No forward guidance was provided. The company said that its hardware and accessories sales fell 12% year-over-year, while its software sales declined 31%. Though not ideal, investors who “like the stock” tend to look past the fundamentals and pile into GameStop when the market is at its most frenetic.
Block (SQ)
As interest rates fall and investors’ risk appetite increases, cryptocurrencies are expected to perform well, which would benefit digital payments firm Block (NYSE:SQ). Not only is Block a financial technology (fintech) firm, it’s also a major holder of crypto. As of Dec. 31, 2023, Block holds 8,038 Bitcoin (BTC-USD), which is worth $555 million at current prices. Despite being crushed during the 2022 bear market, SQ’s share price has been staging a comeback and is up 11% year to date.
With its most recent earnings, Block posted a surprise profit that was mostly due to a more than $200 million gain in its Bitcoin holdings. The company also announced that it made $66 million in profit on Bitcoin sales last quarter through Cash App, a digital banking platform. That’s a 90% increase from one year earlier. Block CEO Jack Dorsey remains a big proponent of crypto, going so far as to rebrand the company as “Block” to reflect its increasing focus on crypto and its underlying blockchain.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.