There were positives and negatives with the latest inflation report. The September Consumer Price Index (CPI) increased at a lower rate than expected. However, prices jumped at the fastest year-over-year rate since January.
The odds seem to be pretty good that Federal Reserve Chair Jerome Powell and the rest of the Federal Open Markets Committee (FOMC) accentuate the positive when they meet this week. If so, Powell could soon give more good news to investors in the form of further rate cuts.
Look for the stock market rally to gain some steam in this scenario. And three stocks stand to be especially big winners if Powell delivers another rate cut as many expect.
Federal Reserve Chair Jerome Powell answers reporters' questions at the FOMC press conference on Sept.17, 2025. Official Federal Reserve Photo.
1. Digital Realty Trust
Real estate investment trusts (REITs) are natural beneficiaries of interest rate cuts. Their business models are built around borrowing money to buy and/or build new properties, which they can then lease out. I think Digital Realty Trust (DLR 0.92%) is one of the better REIT stocks in a lower-interest environment.
Digital Realty Trust focuses on data centers. It currently operates more than 300 data center facilities in over 25 countries. The demand for data centers is skyrocketing, fueled by the surging deployment of artificial intelligence (AI) systems.
NYSE: DLR
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CEO Andy Power noted in Digital Realty Trust's recent third-quarter earnings call, "Meeting this demand within our markets, however, is becoming increasingly challenging." He cited limited electrical power availability, obstacles in obtaining permits, and infrastructure challenges as key problems.
Another hurdle, though, is that building new data centers is expensive. Digital Realty Trust's debt totaled $18.2 billion as of Sept. 30, 2025. It paid $113.6 million in interest expense in Q3, roughly 7% of its total operating revenue. Lower interest rates translate to lower interest expense on new and refinanced borrowing, which leads to higher profitability for this top AI-focused REIT.
2. D.R. Horton
What's one of the biggest reasons Americans who want to build a new house don't move forward? Cost. Mortgage rates are a key component of the high costs associated with homebuilding. If mortgage rates come down, more new houses will be constructed. That would be a great scenario for D.R. Horton (DHI 1.75%).
Since 2002, D.R. Horton has ranked as the largest homebuilder in the U.S. based on volume. Around one out of every seven new single-family homes in the country is built by the company. D.R. Horton operates in 126 markets in 36 states.
NYSE: DHI
Key Data Points
Granted, the Fed has control over federal funds rates (the interest rates that commercial banks lend to each other overnight) rather than mortgage rates. While the Fed's rate cuts can impact mortgage rates, other factors are also important, including Treasury bond yields, inflation, economic growth, and more.
Still, mortgage rates recently fell to their lowest level of the year. An additional rate cut from the Fed could keep this downward trend going. D.R. Horton should directly benefit if it does.
3. Verizon Communications
As we discussed with Digital Realty Trust, lower interest rates reduce borrowing costs. Companies that have high debt loads, therefore, tend to be big winners when the Fed cuts rates. Telecommunications giant Verizon Communications (VZ +0.31%) has a total debt of $146 billion at the end of the second quarter of 2025.
Verizon's business is capital-intensive. The company must invest heavily in infrastructure to compete against major rivals who are also investing heavily. Lower rates make those investments more affordable. However, there's also another reason why I think Verizon could be an especially big beneficiary from additional Fed rate cuts.
NYSE: VZ
Key Data Points
Lower interest rates usually cause bond yields to fall. When that happens, stocks with strong dividend yields tend to become more attractive to investors. Their dividend yields can often be higher than bond yields while also providing potential share price appreciation.
I suspect that a lower-rate environment will cause more bond investors to take a hard look at Verizon. The telecom leader's forward dividend yield is 7.1%. Verizon has also increased its dividend for 19 consecutive years. These factors could make Verizon more enticing if interest rates fall.
