The Fed Just Cut Interest Rates: 3 Stocks to Buy Hand Over Fist

Four-plus years passed without an interest-rate cut from the Federal Reserve. That changed Wednesday when the Fed lowered rates by an unexpectedly large 0.5%.

Investors' initial reactions were muted. However, the stock market soared on Thursday as they digested the impact of the big rate cut. Even better, the Federal Open Market Committee indicated that interest rates could be reduced by another 0.5% by the end of the year.

The Fed's move could be just the ticket to inject more oomph into the bull market that began in late 2022. And it presents a great opportunity for investors. Here are three stocks to buy hand over fist.

1. Dominion Energy

Utility stocks are usually boring. They plod along, primarily attracting income investors. However, it's been a much different story for many utilities in 2024. Dominion Energy (NYSE: D) is a great example. The stock has jumped more than 20% year to date.

I think the Fed's rate cuts will boost Dominion Energy's share price even more. Lower rates translate to lower borrowing costs. That's great news for Dominion, which has roughly $8.3 billion in debt reaching maturity over the next three years and a $6 billion credit facility.

Bond yields also fall when rates decline, spurring many investors to seek higher income. Dominion Energy looks like a great alternative, with its forward dividend yield of around 4.7%.

The stock is even an unlikely way to profit from the artificial intelligence (AI) boom. Dominion Energy serves Northern Virginia, a region that's the world leader in data centers.

2. D.R. Horton

D.R. Horton (NYSE: DHI) hasn't needed lower interest rates to deliver sizzling gains. Shares of the homebuilder have soared close to 30% this year after skyrocketing 70% in 2023.

Make no mistake about it, though: Rate cuts will help D.R. Horton considerably. Mortgage rates usually fall in lockstep with interest rates, and when they do, new houses are more affordable. That's music to D.R. Horton shareholders' ears.

D.R. Horton ranks as the largest homebuilder in the U.S. based on volume. The company operates in 121 markets in 33 states and closed on a whopping 94,255 homes during the 12 months ending June 30, 2024. If any stock benefits from lower mortgage rates resulting from the Fed's move, D.R. Horton will.

There's also a major long-term tailwind for D.R. Horton. Fannie Mae estimates the country needs around 4.4 million new homes, which is close to Zillow's recent 4.5 million estimate. The only solution to this shortage is building new homes.