Donald Trump’s first week in the White House sent stocks on a rally after making a shaky start to the New Year. However, concerns over the economy continue to cloud investors’ sentiment related to high inflation and uncertainty over the Federal Reserve’s future rate cut plans. This saw consumer sentiment decline in January, the first time in six months.

Given the ongoing uncertainty, it would be safe to invest in utility stocks, which are considered defensive, such as American Water Works Company, Inc. AWK, IDACORP, Inc. IDA, NextEra Energy, Inc. NEE and New Jersey Resources Corporation NJR. Each of the stocks belongs to defensive spaces like healthcare and utility and carries a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Also, these belong to the category of low-beta stocks (beta greater than 0 but less than 1). Hence, the recommended approach is to invest in low-beta stocks with a high-dividend yield and a favorable Zacks Rank.

Consumer Sentiment Dips in January

The University of Michigan’s Consumer Sentiment Index came up with a final reading of 71.1 for January, a drop of 2.9 points or 3.9% from December’s final reading of 74. The final reading for January also missed economists’ forecast of 73.2 and was 10% lower than year-ago levels.

Also, consumer sentiment fell for the first time in January. Consumer sentiment remained high in the second half of 2024 as the Federal Reserve initiated its first rate cut in four years after hiking it by 525 basis points since March 2022 in its bid to curb 40-year-high inflation.

The jumbo 50 basis point rate cut in September, followed by two back-to-back quarter percentage point cuts in November and December, coupled with Donald Trump’s win in the U.S. Presidential election, boosted consumers' confidence.

Concerns Over Rate Cut Uncertainty

Trump’s election win sent stocks on a rally that saw all three major indexes hitting record highs. However, stocks gave up the earlier gains in the final weeks of December after data showed that inflation started showing signs of ticking up. Also, data from the Labor Department hinted at a resilient labor market as job additions to the economy grew in the final months of 2024.

The Federal Reserve also took a hawkish stance at the end of its December FOMC meeting, hinting at fewer rate cuts in 2025 as it believes that the economy is still holding strong and it should go slow on future cuts.

Investors are concerned that slower rate cuts would make them deal with price pressures and higher borrowing rates for a longer period. The Federal Reserve’s two-day January policy meeting begins tomorrow, with markets pricing in a 99.5% chance of no rate cuts, according to the CME FedWatch tool. Also, there’s a 66.7% possibility of no rate cuts in March.

This uncertainty and delay in rate cuts could further weigh on consumer sentiment and  markets.

4 Low-Beta Utility Stocks With Upside

American Water Works Company

American Water Works Company, Inc. provides essential water services to over 14 million customers in 24 states and has an employee strength of 6,500. AWK also acquires small water service providers to expand its customer base.

American Water Works Company has an expected earnings growth rate of 8% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.2% over the last 60 days. AWK presently carries a Zacks Rank #2. American Water Works has a beta of 0.71 and a current dividend yield of 2.52%.

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IDACORP, Inc.

IDACORP, Inc. is engaged in the transmission, distribution and sale of electricity services in southern Idaho and eastern Oregon through its primary subsidiary Idaho Power Company (Idaho Power).

IDACORP has an expected earnings growth rate of 5.5% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.2% over the last 60 days. IDA presently carries a Zacks Rank #2. IDACORP has a beta of 0.65 and a current dividend yield of 3.15%.

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NextEra Energy, Inc.

NextEra Energy, Inc. is a public utility holding company engaged in the generation, transmission, distribution and sale of electric energy. NEE has both regulated and non-regulated energy-related products and services, with operations in 40 states in the United States and four provinces in Canada. NextEra Energyserves nearly 10 million people through approximately 5 million customer accounts.

NextEra Energy has an expected earnings growth rate of 7.3% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.3% over the last 60 days. NEE presently carries a Zacks Rank #2. NextEra Energy has a beta of 0.58 and a current dividend yield of 2.83%.

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New Jersey Resources Corporation

New Jersey Resources Corporation is an energy services holding company, which, through its subsidiaries, provides safe and reliable natural gas and clean energy services, including transportation, distribution, asset management and home services. NJR operates through four segments: Natural Gas Distribution, Clean Energy Ventures, Energy Services, and Storage and Transportation.

New Jersey Resources has an expected earnings growth rate of 5.8% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 7.3% over the last 60 days. NJR presently has a Zacks Rank #1. New Jersey Resourceshas a beta of 0.64 and a current dividend yield of 3.84%.

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