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Stocks scrambled for direction on Wednesday in a choppy trading session as volatility returned to Wall Street after the Federal Reserve left interest rates unchanged at the end of its two-day policy meeting.
Inflation is still high, and the uncertainty over President Donald Trump’s tariffs has raised concerns over the economy’s health. Also, the U.S. economy shrank in the first quarter of 2025. This could keep markets volatile for a longer period.
Given this situation, it would be wise to invest in defensive stocks such as utilities. In this regard, The AES Corporation AES, DTE Energy Company DTE, Atmos Energy Corporation ATO and American Water Works Company, Inc. AWK are lucrative buys. Each of these stocks carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The stocks are also from the low-beta category (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.
Fed Leaves Interest Rates Unchanged
President Donald Trump had been calling for rate cuts over the past several weeks to help the economy. However, the Federal Reserve left interest rates unchanged at its May FOMC meeting in the current range of 4.25-4.5%.
The move was highly anticipated, given that the Federal Reserve had earlier said that it would take a cautious approach and would go for a rate cut only after officials are confident that inflation is on track to meet the central bank’s 2% target.
Inflation rose in the final weeks of 2024 and the initial months of 2025. The Fed paused its rate-cut campaign after slashing interest rates by 100 basis points between September and December 2024.
The Fed’s hawkish stance at the beginning of the year hinted at a delay by the Fed in resuming its rate cuts, with market participants believing that it wouldn’t happen before the second half of the year.
Uncertainty Over Tariffs, Q1 GDP Shrinks
Markets were already reeling under fears of a shrinking economy. The concerns were amplified after Trump announced sweeping reciprocal tariffs on all countries trading with the United States and especially targeted China by imposing a whopping 145% import duties on all Chinese goods.
Although Trump has paused the tariffs for 90 days and the White House is already holding trade talks with several trading partners, uncertainty over how the tariffs will take shape continues to keep them concerned.
Also, the U.S. economy shrank in the first quarter for the first time since Q1 of 2022, fueling fears of a recession. Gross domestic product (GDP) fell 0.3% in the first quarter of 2025, sharply lower than analysts’ expectations of a rise of 0.4% after GDP jumped 2.4% in the final quarter of 2024.