5 Discretionary Stocks to Buy as Inflation Shows Signs of Slowing

Zacks

01-17

Rising inflation over the past few months has raised concerns among investors that the Federal Reserve could slow its pace of interest rate cuts this year. This has led to a shaky start for markets in 2025. However, major indexes rebounded on Wednesday as fresh data showed that the annual inflation rate slowed marginally, while the monthly rise was still under control.

Overall, despite a slight rise, inflation closed December on a better note. Given this positive sentiment, investing in consumer discretionary stocks like Carnival Corporation & plc CCL, The Walt Disney Company DIS, Dolby Laboratories, Inc. DLB, Royal Caribbean Cruises Ltd. RCL and Ralph Lauren Corporation RL would be prudent. Each of the stocks has a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Inflation Slows in December

The Commerce Department said on Wednesday that the consumer price index (CPI), the prices people pay for goods and services, rose 0.4% sequentially in December, slightly higher than analysts’ expectations of a rise of 0.3%. On a year-over-year basis, CPI rose 2.9%, which came in line with the consensus estimate.

Core CPI, which excludes the volatile food and energy costs, rose 0.2% sequentially in December, 0.1% lower than the consensus estimate. Year over year, CPI rose 3.2% in December, better than economists’ expectations of a jump of 3.3%. A 2.6% increase in energy prices, fueled by a 4.4% jump in gasoline prices, was responsible for nearly 40% of the index’s gain.

Markets Rally on Slowing Inflation

All major indexes rallied following the release of the data. The Dow, the S&P 500 and the Nasdaq rose 1.7%, 1.8% and 2.5%, respectively, to record their best day since Nov. 6, when Donald Trump won the U.S. Presidential election.

Markets rallied last year after Trump’s win but lost steam in the final weeks of December, with the Santa Claus rally failing to materialize due to concerns over rising inflation. The Federal Reserve initiated its interest rate cut cycle in September and has so far slashed rates by 100 basis points after inflation declined sharply in the second and third quarters of 2024.

Concerns grew that the Federal Reserve could slow or halt its interest rate cuts after inflation rose in October and November. The fears had been taking a toll on stocks. However, signs of inflation slowing in December have alleviated some of the worries. Although markets are pricing in a 97.3% chance of the Fed keeping interest rates unaltered in its January meeting, 55.2% are hopeful of a rate cut in May, which was less than 50% a couple of days back.

Given the rebound in optimism, it would be ideal to invest in consumer discretionary stocks. The Consumer Discretionary Select Sector SPDR (XLY) has gained 30.7% in the past year and 18.8% in the last six months compared to the S&P 500 Index’s growth of 24.4% and 5.7%, respectively.

5 Consumer Discretionary Stocks With Growth Potential

Carnival Corporation & plc

Carnival Corporation & plc operates as a cruise and vacation company. As a single economic entity, CCL forms the largest cruise operator in the world. It is the world’s leading leisure travel firm and carries nearly half of the global cruise guests.

Carnival Corporation’s expected earnings growth rate for the current year is 24.7%. The Zacks Consensus Estimate for current-year earnings improved 3.6% over the last 60 days. CCL currently carries a Zacks Rank #2.