A rate hike by the Federal Reserve could spark a massive rally in blue-chip stocks, Barron's reports.
"Thomas Lee, a strategist with Fundstrat Global Advisors, believes that the Federal Reserve’s pending interest-rate hike will prompt individual investors to sell bonds and snap up stocks in what could become one of the greatest buying frenzies in modern history," author author Steven Sears wrote in
Barron's.
The shares of many of the world’s most respected companies now yield more than the companies’ medium-term bonds, which only heightens their appeal.
"Seeking potential beneficiaries of a buying binge, Lee identified 30 companies with a Standard & Poor’s credit rating of A or higher; a dividend yield exceeding the long-term yield of the company’s bonds; and a market capitalization greater than $10 billion," Sears wrote.
Highlighting Lee's picks:
- International Business Machines (IBM)
- Cisco Systems (CSCO)
- Target (TGT)
- Caterpillar (CAT)
- Deere (DE)
- General Electric (GE)
- UPS (UPS)
- Chevron (CVX)
"Lee calculates that the percentage of American household savings allocated to stock investment has declined by 18.5% since 2007. From 1955 to 2007, American households allocated an average of 2.8% of their wealth to stocks. The decline suggests considerable room for growth," Sears reported.
“This is the largest liquidation in history and surpasses the 10% liquidation during the decade from 1979 to 1989 that was the precedent decade before the massive inflows into equities in the 1990s,” he wrote in a recent client note.
Sears also suggested that "Investors can use the options market to strike agreements to buy Lee’s favored stocks if they fall in price."
While Lee predicts a blue-chip rally, not all experts are as optmistic.
Ruchir Sharma, head of emerging markets equity and global macro, Morgan Stanley Investment Management, fears a global recession.
“We are now just one big shock away from a global downturn," Sharma told
Bloomberg.
"And the next one seems most likely to originate in China, where heavy debt, excessive investment, and population decline are combining to undermine growth, while relatively low-debt countries from Eastern Europe to South Asia look better positioned to weather the inevitable next turn in the cycle,” Sharma said.
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