Most retirees have lost money in the stock market in recent years but there may be an upside coming soon. When interest rates fall and energy prices decrease, it can create a unique investment landscape that benefits certain types of stocks and ETFs. Lower interest rates typically stimulate economic activity, while lower energy prices can reduce costs for businesses and consumers. Here, we'll explore some types of stocks and ETFs that have historically performed well in this dual scenario.

Utilities Sector:

• Stock Example: Dominion Energy, Inc. (D) which is trading around $46 dollars and has been over $80 dollars in late 2022.
• ETF Example: Utilities Select Sector SPDR Fund (XLU)

The utilities sector is known for its defensive characteristics, making it appealing when economic conditions are uncertain. Lower interest rates reduce borrowing costs for utility companies, enhancing their profitability. Additionally, lower energy prices can lower operating expenses, potentially leading to improved margins.

Consumer Discretionary Stocks:

• Stock Example: Amazon.com, Inc. (AMZN) is trading around $147 and has been over $186 in recent months but interest rates and energy prices have taken a toll.
• ETF Example: Consumer Discretionary Select Sector SPDR Fund (XLY)

Lower energy prices can put more money in consumers' pockets, leading to increased discretionary spending on items like retail, entertainment, and travel. Companies in the consumer discretionary sector can benefit from this trend.

Transportation and Logistics Stocks:

• Stock Example: FedEx Corporation (FDX) is trading around $265 and has been over $308 in recent months.
• ETF Example: iShares Transportation Average ETF (IYT)

Falling energy prices can significantly reduce fuel costs for transportation and logistics companies. This cost savings can positively impact their bottom line. Lower interest rates can also support economic growth, leading to increased shipping and transportation activities.

Technology Sector:

• Stock Example: HPQ or www.HP.com  has been as high as $38 recently and is now trading around $29.50
• ETF Example: Technology Select Sector SPDR Fund (XLK)

The technology sector often benefits from lower interest rates, as it can reduce borrowing costs for tech companies. Lower energy prices can also lead to cost savings for tech companies with extensive data centers and energy-intensive operations.

Real Estate Investment Trusts (REITs):

• Stock Example: Simon Property Group, Inc. (SPG) trades around $129 with a big dividend of about 6%, but was as high as $160 in early 2022.
• ETF Example: Vanguard Real Estate ETF (VNQ)

REITs can perform well when interest rates are low, as they rely on debt financing for property acquisitions. Lower interest rates can reduce their borrowing costs. Moreover, lower energy prices can indirectly benefit retail and office property REITs by lowering operational expenses for their tenants, potentially reducing vacancies and boosting rental income.

Healthcare Stocks:

• Stock Example: Johnson & Johnson (JNJ) trades around $158 but was as high as $184 in 2022 & has about a 3% annual dividend at present.
• ETF Example: Health Care Select Sector SPDR Fund (XLV)

Healthcare stocks are often considered defensive, and they can perform well in times of economic uncertainty. Lower interest rates can reduce borrowing costs for healthcare companies. Moreover, lower energy prices can help control operational costs for healthcare facilities.

Sadly, many retirees have lost as much as 25% of their savings in the stock market in the last 2 years.  If you look at the 3 year returns on ETFs since January 2021, there are some big losers in the top 100. While energy stocks perform well while fuel prices are up, they may be coming down a bit.

With the 2024 election season on the horizon, we can only assume there is much pressure on the Federal Reserve to normalize lending rates a bit and bring down lending costs by at least 2% as Credit Card APRs are up to 25% and auto loans are around 9% for a used car.   The bearish ETFs that bet against energy and semiconductors over the last 3 years seemed to be hit the hardest especially since the AI Boom which needs a technology infrastructure.

Some ETFs bearish on energy profits could be a good bet.  Biotech has been down a lot over the last 3 years, China indexes are down a good amount, Cannabis is down big, but these all may start moving up again soon as long as energy and interest rates come down and there is no global conflict. If the Russia Ukraine conflict is solved, it could provide expanding investment opportunities in either nation and in all neighboring emerging markets.

Overall, the online retail sector still looks really good if interest rates come down while fuel prices come down also.  ETFs such as IBUY, and ONLN are both retail online ETFs that could benefit.

As much of the costs of online retail are with employees, distribution and transport, these ETFs may do well in 2024 if interest rates come down. Airlines, shipping services, and cruise companies may also save much money with lower costs and boosting profits.  Also, some of the Crypto and mining stocks have been hit badly since crypto mining uses energy and further, some crypto executives have been caught in  scams. Overall, with the US debt where it is today, people still seek having an alternative currency and lower cost payment methods that avoid merchant account fees.

In sum, there are some interesting opportunities in the stock markets right now.  For those who are sitting on cash, this is a good time to do some stock and industry sector analysis.  As they say, if milk and eggs are up 30-50%, then, it is possible that the S&P will make a similar move up in the next 24 months to partially catch up with the hyperinflation that we have had over the last 3 years.  

Before making any investment decisions, it's essential to conduct thorough research, consider your investment goals and risk tolerance, and consult with a licensed professional. Additionally, economic and market conditions can change quickly, so it's important to stay informed about the latest developments that may impact your investment choices.

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Commissioner George Mentz JD MBA CILS CWM® is an international lawyer, speaker, educator, tax-economist, and CEO of the GAFM Global Academy of Finance & Management ®. The GAFM is a ESQ accredited graduate body that trains and certifies professionals in 150+ nations under CHEA ACBSP and ISO 21001 standards. Mentz is also an award winning author and graduate law professor of wealth management for a top U.S. law school.