S&P's Stovall: Beware of These 3 Stock Sectors as Rates Rise

Tuesday, 12 Aug 2014 06:50 PM

By John Morgan

  Comment  |
   Contact  |
  Print   |
    A   A  
  Copy Shortlink
Three types of stocks could end up being a trap in coming months, and prudent investors should not expect favorable returns from them, according to Sam Stovall, chief equity strategist at S&P Capital IQ.

His sectors to shun are those that could be hurt by a spike in interest rates or tightened money policy by the Federal Reserve.

“From a historical standpoint, let’s face it. Over the coming year or we will be in a rising rate environment,” he told Yahoo Finance. “In our opinion and of most on Wall Street, and since 1970, the three sectors with the worst average performance in a rising interest rate environment have been utilities, telecom and financials.”

Editor’s Note: New Warning - Stocks on Verge of Major Collapse

Financials are not cheap at this time. Stovall said they are trading at an 18 percent premium to their relative valuation compared with the S&P 500.

“So in our belief, the financials are more than discounting a recovery in the U.S. economy, and lastly from a technical perspective, the group is appearing to be rolling over.”

Stovall’s view of utilities is no brighter. “Utilities, I think, are going through a counter-trend rally right now, but if we want to talk expensive, here is a group that is trading at 3 times its 5-year projected growth rate versus 1.4 times for the S&P 500.”

He said investors have been gravitating to utilities because their dividend yields are attractive. “But I think they should yield to caution at this point,” he advised.

As for telecoms, Stovall said they likely also too rich for comfort – historically, telecoms are poor performers in rising rate environments, and he said the sector is now trading at a 26 percent premium to its long-term valuation compared with the S&P 500.

Is there any other stock sector Stovall is wary of now? “You can probably throw in consumer staples for good measure,” he said.

On a positive note, he told Yahoo Finance that sectors that could do well now include energy, industrials, health care and information technology.

USA Today reported that only 191 large-company stock funds, or 27 percent of the total, are beating the S&P 500’s gain of 5.65% through July 30.

“The funds that have been most likely to beat the S&P 500 this year have had a value tilt — that is, the funds look for beaten-down stocks that Wall Street hates,” USA Today said.

The newspaper said the three top large-company stock funds in 2014 are: PIMCO StocksPLUS Long Duration fund, up 18.1 percent; Advantus Strategic Dividend Income,  up 15.2 percent; and Invesco Exchange Fund, up 10.9 percent.

Editor’s Note: New Warning - Stocks on Verge of Major Collapse

Related Articles:

© 2014 Moneynews. All rights reserved.

  Comment  |
   Contact  |
  Print   |
  Copy Shortlink
Around the Web
Join the Newsmax Community
Please review Community Guidelines before posting a comment.
>> Register to share your comments with the community.
>> Login if you are already a member.
blog comments powered by Disqus
 
Email:
Country
Zip Code:
Privacy: We never share your email.
 
Follow Newsmax
Like us
on Facebook
Follow us
on Twitter
Add us
on Google Plus
Around the Web
You May Also Like

Saudi Oil Chief: No Conspiracy Behind Plunging Oil Prices

Sunday, 21 Dec 2014 09:33 AM

Saudi Arabia's oil chief on Sunday dismissed allegations that his kingdom conspired to bring down oil prices in order to . . .

Economist Beaman Sees Opportunities for US Food, Infrastructure in Cuba

Sunday, 21 Dec 2014 09:22 AM

President Barack Obama's decision to resume diplomatic ties with Cuba won't instantly create a bevy of opportunities for . . .

Meredith Whitney's Hedge Fund Reportedly in Turmoil

Saturday, 20 Dec 2014 11:43 AM

The hedge fund Meredith Whitney started last year after she became one of Wall Street's best-known analysts is in turmoi . . .

Most Commented
Top Stories

Newsmax, Moneynews, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, NewsmaxWorld, NewsmaxHealth, are trademarks of Newsmax Media, Inc.

 
NEWSMAX.COM
America's News Page
©  Newsmax Media, Inc.
All Rights Reserved