The U.S. economy has proven more resilient than expected, narrowly avoiding recession despite the Federal Reserve's persistent aggressive rate hikes. Despite the Fed holding the benchmark federal funds rate at 5.25%-5.5%, the world's largest economy added 336,000 nonfarm payrolls in September, the highest since January, surpassing expectations.
While the central bank kept the rates unchanged in November, Federal Reserve Chairman Powell reiterated that the fight against inflation isn't over.
"The process of getting inflation sustainably down to 2% has a long way to go," Powell said. "I still believe, and my colleagues for the most part still believe, that it is likely to be true … that we will need to see some slower growth and some softening in the labor market to fully restore price stability."
This statement indicates further rate hikes on the horizon to bring the inflation rate down from the current 3.7% to the targeted 2%. The 10-year U.S. Treasury yields rose significantly last month, renewing recession fears, with many analysts predicting a hard landing sometime in 2024.
As the market fears persist, here are some large-cap stocks that could provide stable returns in the near term.
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McDonald's
McDonald's Corp. MCD has long been regarded as a recession-proof dividend aristocrat stock, making it one of the best investment options in a volatile backdrop. Back in October, McDonald's raised its quarterly dividend payments by 10% to $1.67, amounting to $6.68 annually. The world's largest fast-food chain has raised its dividend payments for 47 years in a row, making it a highly coveted dividend aristocrat stock.
"The company is committed to its capital allocation philosophy of reinvesting in the business to drive profitable growth and returning all free cash flow to shareholders over time through a combination of dividends and share repurchases," McDonald's said in a press release.
The company's strong financials also support the bullish case for MCD stock as the multinational company's global systemwide sales rose 11% year-over-year in the third quarter of 2023.
Renowned financial institutions such as BMO Capital, Morgan Stanley and Barclays have an Overweight or equivalent rating on MCD stock. BMO Capital has a price target of $325 on MCD, which reflects a potential upside of over 20%, while Morgan Stanley and Barclays issued a target of $315 for the stock, indicating a potential upside of over 17%.
Walmart
Walmart Inc. WMT, the world's largest grocer and general merchandise retailer, has delivered robust performance despite market turbulence over the past few years. Strong consumer spending despite sky-high interest rates has allowed the company to generate robust returns over the past couple of quarters. WMT stock hit its all-time high on Nov. 3, 2023, thanks to soaring investor optimism ahead of the holiday season.
Walmart is also consolidating its market share in the e-commerce space, with online sales in the U.S. rising by 24% year-over-year for the quarter ended July 31. The retailer plans to invest over $9 billion over the next two years to revamp its stores across the country. As part of this effort, the company reopened 117 stores nationwide on November 3, marking the largest single-day rollout of re-grand openings in Walmart's history.
The majority of Walmart's revenues come from grocery sales, making it well-positioned to weather economic downturns. The world's largest retailer's business is naturally hedged, according to CEO Doug McMillon.
"If customers want more of something and less of something else, we shift our inventory," McMillon added, "If the economy is strong, our customers have more money, and that's great. If things are tougher, they come to us for value."
Microsoft
While tech giant Microsoft Corp. MSFT is not historically regarded as recession-proof, the company's growing involvement in artificial intelligence (AI) makes it well-positioned to weather temporary market turbulence amid the growing importance of AI.
Microsoft has been gradually taking steps to expand its business across various avenues through investments and acquisitions. The company made headlines after acquiring Activision Blizzard, one of the largest gaming companies in the world, last month for $69 billion.
MSFT has invested over $13 billion in ChatGPT creator OpenAI over the years, making it one of its major stakeholders. OpenAI is currently generating revenues at an annualized rate of $1.3 billion, and MSFT is entitled to 75% of that until it recoups its original $13 billion investment.
Unsurprisingly, MSFT shares have been surging so far this year. The stock has gained over 50% year-to-date and hit its all-time high earlier today.
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