3 Investing Moves to Make Now While the Fed Is in a Holding Pattern


  • There are some ways to make higher-for-longer interest rates work for you. 
  • Get Defensive: You can find some magnificent stock in other sectors. 
  • Only the Best: This is no time to swing for the fences.
  • Look for High-Yield Dividend Stocks: Some corporate dividends pay higher than fixed-income investments.
interest rates - 3 Investing Moves to Make Now While the Fed Is in a Holding Pattern

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Now that the Federal Reserve has made it clear that higher interest rates may be here through summer, investors may be tempted to follow the strategy to sell in May and go away. They may have started a month early.

Recent data from Vanda Research shows that retail investors stopped purchasing stocks at a much greater rate than expected. The firm reported, “Indeed, retail buying of single names severely undershot even our most-bearish forecast since late 2020.” 

Not surprisingly, tech stocks and semiconductor stocks were the ones seeing the largest volume declines. 

The research firm expected some seasonal decline due to tax season. However, some of the ambivalence may have had to do with interest rates. Equities took a steep turn south after members of the Fed started making hawkish remarks.

It wouldn’t be that investors don’t have options. Fixed-income investments are generating their best rate of return in well over a decade. Money has been shifting into precious metals, particularly gold. Cryptocurrency, led by Bitcoin (BTC-USD), is attracting risk-tolerant investors.

And you can understand why investors believe that time is on their side. Historically, stocks go down after the Fed lowers interest rates.

But as the saying goes, time in the market is more important than timing the market. And if you’re not in the market when the Fed pivots, you’ll miss out on the biggest gains when the bear begins to roar again. And besides, there are still some really good options if you want to stay in stocks. Here are three time-honored strategies you can execute immediately.

Get Defensive 

It may be time to get defensive. That was supposed to be the playbook for 2023. But artificial intelligence (AI) pulled the market out of its doldrums.

This time around, it’s the tech sector that’s slumping. That means it’s time to look for those companies that sell products and services consumers will continue to buy even as they continue to be pinched by stubborn inflation.

And make no mistake. They’re feeling the pinch. Walmart (NYSE:WMT) and Costco (NASDAQ:COST) are two retailers that have expressed cautious guidance as consumers cut back on discretionary spending. However, these are also two companies that will continue to post solid revenue and earnings. Plus, they pay a reliable dividend.

Another attribute to look for in defensive stocks is pricing power. Higher inflation adds to the cost of goods sold. The best companies can manage to pass at least some of that cost along to consumers.

Only the Best

Some troubled stocks may be about to get really cheap. But, frequently, cheap stocks are cheap for a reason. These companies are often unprofitable and may not even have revenue coming in the door.

These stocks may be worth a look in good times. However, higher interest rates make the cost of borrowing more expensive. Since these companies are still borrowing to grow, their balance sheets, which are already poor, will only get worse. 

Instead, look for some quality stocks that are on sale. It can allow you to buy shares of companies on your watchlist that you have been waiting for an opportunity to buy.

Keep it simple. Look for companies that have made money in the past, are making money now and will make money in the future. 

Buy the best, and forget the rest.

Look for High-Yield Dividend Stocks 

In March 2023, a bunch of high net-worth investors pumped money into Treasury notes after the rate on the 2-year reached 5%. That rate is still around 4.9% today, and investors may be looking at money markets or even I-bonds as an alternative to stocks. 

However, this is a good time to look at some high-yield dividend stocks with a dividend yield higher than the interest rates on Treasury bills. Stocks like Verizon Communications (NYSE:VZ), Altria (NYSE:MO) and Energy Transfer (NYSE:ET) all have high-yield dividends and may have growth drivers that could drive the stock price higher, adding to your total return.

On the date of publication, Chris Markoch did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines. 

Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for InvestorPlace since 2019.

Article printed from InvestorPlace Media, https://investorplace.com/2024/04/3-investing-moves-to-make-now-while-the-fed-is-in-a-holding-pattern/.

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