Overnight in the U.S., all eyes were fixed on comments made by Federal Reserve members John Williams and William Dudley who indicated that Donald Trump's approach to fiscal policy could alow a rate hike as early as March.
According to the Fairfax Press, the two policymakers believe recent indicators of U.S. economic growth require serious consideration to be given to a rate hike when the Fed next meets on March 14 and 15.
If a rate rise was to occur, I believe two stocks which could benefit are CSL Limited (ASX: CSL) and QBE Insurance Group Ltd (ASX: QBE). Here's why.
CSL
As the posterchild for Australia's biotechnology industry, CSL's 2017 half-year results exceeded expectations on the back of accelerating growth in its largest operating market – the United States..
CSL reported its total operating revenue in the United States swelled 22.4% to US$1.6 billion as the blood plasma, vaccine and immunoglobulin product maker's net profit after tax surged 36% in constant currency.
A turnaround in its newly acquired influenza vaccines business – Novartis AG Seqirus – and strong sales in its core immunoglobulin division boosted underlying earnings (EBIT) by 38% for the half. This demonstrates the strength and resilience of this defensive healthcare stock.
Although CSL's shares have rallied on these results to trade on a lofty trailing price-earnings of about 26x, I believe the stock still has room to grow as an increase to U.S. economic growth and the depreciation of the Australian dollar (as a result), should buoy earnings on a translated basis.
This paves the way for stronger returns for Australian shareholders, in my opinion.
QBE Insurance Group
Like CSL, QBE stunned the market during reporting season after the perennial underperformer reaped the rewards of its "back-to-basics" strategy and renewed focus on the North America market.
For its 2016 full-year, QBE reported net profit after tax was up 5% to US$844 million (or 16% when reported in Australian dollars), as a doubling of underwriting profits in North America and increased group insurance profit margins drove earnings higher.
Impressively, the group delivered a 60 basis point uptick on its return on equity to offset a 2% fall in gross written premiums to $14.1 billion. This resulted in QBE recording cash profit growth (of 1%), and enabled management to pay a higher final dividend of 33 Australian cents per share.
With QBE returning to headline profit growth on the back of a stronger U.S. economy, I'm inclined to believe any further economic growth in the U.S. should continue to benefit the group. Additionally, if the Fed increases interest rates, QBE's U.S. treasury investments should yield higher returns, auguring well for its bottom line.
This, in my opinion, makes it one stock to watch.
Foolish takeaway
Whilst economists believe the uptick in U.S. growth may be attributable to Trump's laissez-faire, pro-business policies, Federal Reserve policymakers will be sure to seize any opportunity to lift U.S. rates to sustainable levels.
Accordingly, if the U.S. lifts interest rates in March, I believe CSL and QBE are two stocks which stand to prosper from a stronger U.S. economy.
