This week, Weiss Ratings Financial News Anchor Jessica Borg had a chance to get insights from Senior Analyst Mike Larson, editor of Safe Money Report. The two spoke about:
- The sector rotation from growth stocks to value stocks.
- How to prosper during inflationary periods.
- One company that’s taking off in these market conditions.
- And much more.
You can watch the video segment or continue reading for the full transcript.
Jessica Borg (narration): It’s early days, but in the new year, it looks like money in the market is looking for a new home.
Mike Larson, editor of Safe Money Report, says steady and defensive stocks are the name of the game.
JB: Mike, we’ve seen a big shift in trends, so far this year.
Mike Larson: We’ve seen a big rotation … really a massive sector rotation, where you had money coming out of technology and those really high-beta, high-octane growth and tech names … and what you’ve seen is a lot of that money coming to sectors that have been left behind previously — things like energy, financials, industrials, basic materials.
JB: In the first week of this month, the energy sector was up more than 10%. Financials were up more than 5%. Value stocks were up nearly 1%, and tech was down more than 4.5%.
ML: You had the strongest outperformance of value stocks over growth stocks since at least 1995. You also had the strongest first week for energy and financials in many, many years.
And when you see these types of moves happen, they typically have legs. It’s not something that’s over in a week or two. It’s something that persists for months, or even quarters.
People are placing bets on sectors that tend to do better in economic expansions … that tend to hold up better when the Fed does start raising interest rates.
JB (narration): The Fed has signaled it’ll start raising rates in March to deal with inflation, which is now at 7%.
JB: The Fed could hike interest rates three times, up to four times in the coming months. How do you see that playing out?
ML: You’re absolutely right. If you look at the interest rate futures market — where investors can bet on expected outcomes — they are pricing in about three or four hikes over the next year, year and a half.
Ultimately though, the Fed can’t push rates very high — or as high as we’ve seen in past cycles — because the economy just has too much debt piled on it.
If the Fed were too aggressive with hiking, you’d have a problem with housing. If the Fed hikes rates too much — with housing being as expensive the way it is — it becomes unaffordable, buying slows down, the economy slows down too much.
I will be surprised if the Fed funds rate got up in this cycle where it was last cycle, which is sort of that low two range.
JB (narration): Even with a few short-term rate hikes, he says long-term yields will stay relatively flat.
ML: You can’t just sit there in treasury bonds that yield 1.5%, 1.8 %, because when inflation is running at 7%, you’re losing money.
Every penny you put into a treasury bond right now, at the end of the year if inflation doesn’t change, you’ve lost money … a few percentage points for every dollar.
JB (narration): Investors need stocks that generate yields that beat inflation.
ML: I mean these inflation numbers are truly the worst we’ve seen since the early 1980s.
And wages are up quite a bit, but the problem is prices are up even more.
So, when you look at the average American, they’re actually poorer now than they were a year ago. They might’ve gotten a raise, but prices at the gas station have gone up even faster than their wages.
JB (narration): It’s crucial to target sectors that benefit from rising prices.
JB: Investors are really seeing and feeling the higher prices at the supermarket, for example, but there’s a chance to capitalize on that.
ML: I always say, “Don’t get angry, get even.” Fight back in your portfolio.
If you want to fight back at having to pay too much at the grocery store or at the gas pump, buy the stocks that sell into those companies, right? That way you’re making money as their profits go up, even if you’re paying more when you go to the store.
JB (narration): One name to watch is Mondelez International (Nasdaq: MDLZ, Rated “B”). It’s a global snack food producer with an annual revenue of about $26 billion.
ML: They’ve had better earnings news in the past three [to] six months and the stocks reacted by breaking out.
JB (narration): The company has a Weiss Ratings stock safety rating of “B” — a recommendation to “Buy.”
The Weiss Ratings website can be a critical tool in knowing which stocks are hot, which show promise and what to sell.
It gives you a company’s safety rating, price history, dividend pay-outs, income statements and comparisons with similar stocks in that sector.
It also has data on banks and exchange-traded funds (ETFs).
Mike likes the benchmark ETF, Energy Select Sector SPDR Fund (NYSEArca: XLE), which is in the oil and gas sector.
ML: XLE is a great ETF for a field bet. There are individual companies within there (the ETF), Chevron (NYSE: CVX), ConocoPhillips (NYSE: COP).
JB (narration): And in the financial sector …
ML: I like Comerica (NYSE: CMA), KeyCorp (NYSE: KEY), all those kinds of companies that are your core regional and super-regional banks.
JB (narration): Another investing strategy is to sell options.
The aim in Weekend Windfalls is to safely earn $1,000 every Friday by selling options … selling them, not buying them.
Mike is putting the finishing touches on a masterclass for investors.
ML: If you sell options, sell put options — put spreads against high-quality stocks — that’s a way to generate additional income to boost the yield your portfolio throws off.
And it’s a way to fight back against what inflation is doing, which is pushing back against your portfolio.
JB (narration): So, counterattack and see gains along the way.
JB: Senior Analyst Mike Larson, thank you so much for your time and insights today.
ML: Great, thank you Jessica.
Best wishes,
The Weiss Ratings Team