So far, Ukraine, inflation, and interest rate worries are moving markets. Still to come are the November midterm elections and possibly a new spending and tax bill. Given this gloomy backdrop, you may be asking: How should I invest for the balance of the year?
It’s a good question. One I’ve been getting more frequently lately from clients. To help, in the spirit of the annual college basketball tournament, I’ll share a few investment insights and trends worth watching. (For a deeper dive, join my webinar on March 16: 2022 Asset Allocation Viewpoints, register here.)
Longtime underdogs shine
As of the end of February the S&P 500 was down 8%. Higher-growth stocks like technology stocks are companies that typically reinvest their dividends for future growth. Those stocks fared much worse as they were disproportionately impacted by rising interest rates and were coming off higher starting valuations. Value stocks – companies that pay dividends to their shareholders, i.e., financial and energy stocks – have long underperformed growth stocks but have held up better recently in comparison. Value has outpaced growth by about 9% as of the end of February.
In basketball terms: Score one for the underdog.
It’s all about defense
In the movie Hoosiers, Coach Norman Dale (Gene Hackman) hollers at his players “I’ve seen you guys can shoot but there’s more to the game than shooting. There’s fundamentals and defense.” If Coach Norm was an investor he might be thinking of defensive stocks. Consumer defensive stocks are stocks that typically provide dividends and have had stable earnings or where there is constant demand for a company’s products. Utility providers like natural gas, or food and beverage companies, or healthcare providers can be considered consumer defensive.
Why consider defensive stocks? Higher energy prices and higher interest rates may stymie growth this year, or worse lead us into a mild recession. If that happens, in my opinion, companies best suited to thrive may be providers of consumer products we just can’t live without.
Coach John Wooden is a college basketball legend, winning 10 national championships in his last 12 seasons at UCLA before retiring. He shaped his winning philosophy into the “Pyramid of Success” – traits he felt important for his players to have. Near the top of the pyramid is “poise.”
Poise, in the words of Wooden, means “Don’t be thrown off by events, whether good or bad.” This is true in the investment world. Poise in investing means not being rash, not making knee-jerk decisions, but rather putting emotions to the side and thinking clearly, logically. Now is the time for poise.</…….