These stocks might see the largest increase if the Fed cuts rates.

Market Insights on Debt and Stocks

Stocks like HB Fuller and Wyndham Hotels & Resorts have reported notable gains as short-term interest rates have dropped. This is particularly beneficial for companies with a significant amount of floating-rate debt. Recent economic indicators, including this week’s jobless claims and salary figures from August, contributed to the decline of the 10-year Treasury yield to 4.00% as of Thursday. Presently, the market is pricing in an 89% expectation that the Federal Reserve will lower its benchmark federal funds rate by a quarter point in their upcoming policy meeting, while there’s an 11% chance of a half-point cut, according to interest rate futures on CME’s FedWatch tool.

Reductions in rates by the U.S. Central Bank can ease short-term borrowing costs, providing a disproportionate advantage to companies with high variable-rate debt. Generally, smaller companies are more likely to carry variable rate liabilities when compared to their larger counterparts. Earlier this month, Goldman Sachs compiled a list of equities with the highest floating-rate obligations, which included companies like HB Fuller, known for producing adhesives and carrying about $2.1 billion in total debt. Even with a 9% decline in share price this year up until Wednesday, analysts remain divided on HB Fuller—some recommending strong buys or buys while others suggest a hold or a sell. The average price target from analysts suggests a potential upside of about 16%.

Wyndham Hotels & Resorts, another stock highlighted by Goldman Sachs, has seen its shares fall by 16% this year, but it stands to gain from lower borrowing costs. The accommodation provider has roughly $2.5 billion in debt and analysts are largely optimistic about its future, with 14 out of 15 rating it as a strong buy or buy—only one analyst holds a neutral position. Total liabilities for Wyndham are around $6.8 billion. Additionally, foodservice provider Aramark ranks high on Goldman Sachs’ list for floating-rate liabilities, even though its stocks have risen by 2% this year. The outlook is generally positive among analysts, with 13 rating it as a strong buy or buy, while just two offer a hold recommendation.