Investors readjust portfolios to meet a tighter Fed, in a sign central banks are ready to do whatever it takes to combat inflation that rocked markets in the first week of 2022 doing. Yields on benchmark 10-year US Treasury bonds are on track for their biggest weekly gain since September 2019, but tech and growth stocks have crashed, prompting investors to bankers, energy companies. , and purchased shares in other economically sensitive companies.
This could weigh on tech and growth stocks as rising borrowing costs could hurt future profits. The S&P 500 Value Index is up about 1% year-to-date, while the S&P 500 Growth Index is down about 4%. The broader index fell about 1.7% over the year. Gabelli Funds portfolio manager Bob Leininger expects this trend to continue, shifting portfolio focus to financials, energy and airline stocks such as Boeing in anticipation of a broader recovery in global travel.
The action is widely reminiscent of the market opening in 2021, when the rollout of a coronavirus vaccine has raised hopes of reopening the US economy. Yields fell in the second half of the year as the rally in economically sensitive stocks slowed and investors returned to the tech and growth stocks that have boosted markets over the past decade. This time, investors should consider his Fed, which is expected to hike rates at least three times this year as it battles rising consumer prices.
“The Fed is serious about ending quantitative easing. “This is the year that we will start to see quantitative tightening and that will favor value stocks.” While investors typically view a hawkish Fed with caution, equities have nevertheless tended to rise during past rate-hike cycles. The S&P 500 has risen at an average annualized rate of 9% during the 12 such cycles since the 1950s and showed positive returns in 11 of those instances, according to data from Truist Advisory Services.
Altfest is focusing on companies such as banks, which he expects to benefit from higher interest rates and trade at comparatively lower valuations, while also maintaining positions in giant technology-focused companies. The banking sector in the S&P 500 is up more than 7% year-to-date, trading at 11.5 times the price/earnings of the broader index at 26.1.
Expectations that the Fed will raise interest rates at least three times in 2022 will “cut down on speculation” in the market, said Lew Altfest, chief executive of Altfest Personal Wealth Management. That will likely weigh on both deep value-oriented sectors like travel and energy that saw outsized gains in 2021, while at the same time hurting high-growth technology shares, he said.
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