I am considering buying 2 shares before the next interest rate cut by the Bank of England

Interest rate cuts can affect markets in unexpected ways. To keep my portfolio stable, I’m considering the best stocks to buy to prepare for volatility

After the US cut interest rates by 50 basis points last week, all eyes are on the Bank of England (BoE). In August, it made its first rate cut of the year, by 25 basis points. Brokers and financial institutions are expecting at least one more rate cut in November, to 4.75%, with four more cuts to 3.75% throughout 2025.

Leading US technology index, Nasdaqhas risen 1.8% since the Fed’s big cut last week. By comparison, FTSE All Shares is down 0.6% since the BoE cut on August 1. So does the UK index need that extra 0.25% drop before it recovers – or could another rate cut trigger further declines?

To prepare for both scenarios, I consider the following two actions.

Defensive dividend stocks

Some stocks weather volatility storms better than others. When volatile markets cause other stocks to fall, defensive stocks ride the wave. Utilities and health care stocks are typical examples because they maintain steady demand and are not cyclical.

With a stable share price and reliable dividend, Severn Trent (LSE:SVT) is a good example. The water and wastewater company has a 4.5% yield and has been paying dividends consistently for decades. However, it has very little growth potential, with a price-to-earnings (P/E) ratio of 56.4. If earnings do not improve, the stock could suffer losses in the short term.

The company was recently fined £2m for failing to stop sewage leaking into the River Trent. As a result, it now has £8.15bn in debt, which could threaten dividends if the company does not find a way to cut costs and increase profits.

The growth has been steady, with some small peaks and troughs, but slow. The stock is up 225% over the past 30 years, an average of just 4% per year. These aren’t particularly exciting returns. However, with the steady demand for media, revenues are steady and volatility is minimal. To keep my portfolio stable, I plan to buy stocks this week.

Come for the holidays

Stability is one thing, but if the market goes up, I don’t want to miss it completely. Mid-cap stocks tend to have more growth potential, and one that looks good right now is Card Factory (LSE:CARD). Leading Broker UBS last week gave the shares a Buy rating with a target price of 180p, representing a 25% increase from the current price.

The online card and gift company suffered significant losses shortly after going public in 2014, falling 92% in five years. Not a great start. But things have improved since mid-2020, with the price up almost 400% from its all-time low. And with the holiday season approaching, online card and gift sales should see a significant boost.

It is trading 47% below fair value based on forward cash flow estimates, and earnings forecasts are for growth of 6% per year. It lacks the growth potential of its closest competitor, Moon Pigbut it makes up for it with a 3.2% dividend. As a result, I plan to buy shares next month.