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Welcome to Episode #309 of the Zacks Market Edge Podcast.
Every week, host and Zacks stock strategist, Tracey Ryniec, will be joined by guests to discuss the hottest investing topics in stocks, bonds and ETFs and how it impacts your life.
This week Zacks Chief Equity Strategist, John Blank, joins the podcast to address the topic he and Tracey have discussed many times over the last 7 years of the podcast: is the US in a recession?
And what should investors be doing, if anything, if they are nervous about what’s to come as the Federal Reserve raises rates in 2022.
Is a Recession Coming to the United States?
According to John Blank, who is an economist, there are only two countries currently in a recession: Russia and China. China’s PMIs fell into contraction, under 50, last month and with the Shanghai COVID restrictions and shutdowns, they likely are staying there this spring.
But in the United States, unemployment has fallen to 3.6% and February’s job gains were revised higher to 750,000. That’s a number which hasn’t been seen in a normal recovery month (not immediately after the pandemic reopening, for instance), since the early 1980s.
The job market is red hot. Until the job market slows, the economy continues to be strong.
Fed Signaling Quicker Rate Increases
Today, Fed Governor Brainard warned in comments that the Fed may be raising more aggressively in May. She was one of the most dovish on the FOMC so it’s striking that even she is now saying that the Fed must act more aggressively.
10-year yields jumped to 2.56%, a 3-year high, on her comments.
Where does this leave stock investors? John Blank has some advice.
Have a Plan While the Fed Raises Rates
1. Have some cash on hand.
2. Buy stocks, not bonds. Dollar cost average every month so you’re buying any weakness.
Old Second Bancorp is a small cap Illinois-based bank that has a market cap of just $635 million. However, Old Second is now the third largest bank in the Chicagoland area thanks to a recent acquisition.
While Old Second Bancorp’s shares are up 12% year-to-date, over the last month they have fallen 0.5%.
Analysts expect Old Second Bancorp to be a small bank winner with earnings expected to rise double digits as the Fed raises rates.
Old Second Bancorp pays a dividend, currently yielding 1.4%.
Comerica is a big Texas-based regional bank with a market cap of $11.7 billion. It has operations in several states, including Michigan. But Texas’ economy continues to be red-hot, driving bank earnings.
Shares of Comerica are up just 2% year-to-date and have actually fallen 1.6% in the last month despite the Fed beginning to raise rates.
Comerica now trades with a forward P/E of just 13.6 and pays a dividend, yielding 3.05%.
Image: Bigstock
How to Invest as the Fed Raises Rates
Welcome to Episode #309 of the Zacks Market Edge Podcast.
Every week, host and Zacks stock strategist, Tracey Ryniec, will be joined by guests to discuss the hottest investing topics in stocks, bonds and ETFs and how it impacts your life.
This week Zacks Chief Equity Strategist, John Blank, joins the podcast to address the topic he and Tracey have discussed many times over the last 7 years of the podcast: is the US in a recession?
And what should investors be doing, if anything, if they are nervous about what’s to come as the Federal Reserve raises rates in 2022.
Is a Recession Coming to the United States?
According to John Blank, who is an economist, there are only two countries currently in a recession: Russia and China. China’s PMIs fell into contraction, under 50, last month and with the Shanghai COVID restrictions and shutdowns, they likely are staying there this spring.
But in the United States, unemployment has fallen to 3.6% and February’s job gains were revised higher to 750,000. That’s a number which hasn’t been seen in a normal recovery month (not immediately after the pandemic reopening, for instance), since the early 1980s.
The job market is red hot. Until the job market slows, the economy continues to be strong.
Fed Signaling Quicker Rate Increases
Today, Fed Governor Brainard warned in comments that the Fed may be raising more aggressively in May. She was one of the most dovish on the FOMC so it’s striking that even she is now saying that the Fed must act more aggressively.
10-year yields jumped to 2.56%, a 3-year high, on her comments.
Where does this leave stock investors? John Blank has some advice.
Have a Plan While the Fed Raises Rates
1. Have some cash on hand.
2. Buy stocks, not bonds. Dollar cost average every month so you’re buying any weakness.
3. Stay broad. Buy small caps, mids, large, international, niche sectors.
What Stocks Should Investors Be Looking At?
If you want to buy stocks, ETFs are always an option. John Blank likes the small caps which have been stuck in a narrow trading range for over a year.
Investors can buy the Russell 2000 through the iShares Russell 2000 ETF (IWM - Free Report) . It has expense ratio of 0.19%.
The IWM has fallen 8.7% year-to-date. It has under performed the S&P 500 in 2022 but eventually the small caps will rise again.
John Blank also thinks investors should stay away from the growth stocks like Block (SQ - Free Report) .
Block shares have fallen 40.8% over the last year. But they are off their 2022 lows, having gained 27.6% over the last month.
Block is still expensive, on a forward P/E basis, with a P/E of 138. It has a PEG ratio of 6.5. A PEG under 1.0 usually indicates value.
Block will next report earnings in May.
Are the Banks a Buying Opportunity?
But what about the banks? With rates rising, the banks are expected to see higher earnings. But how do you know which ones to buy?
1. Old Second Bancorp (OSBC - Free Report)
Old Second Bancorp is a small cap Illinois-based bank that has a market cap of just $635 million. However, Old Second is now the third largest bank in the Chicagoland area thanks to a recent acquisition.
While Old Second Bancorp’s shares are up 12% year-to-date, over the last month they have fallen 0.5%.
Analysts expect Old Second Bancorp to be a small bank winner with earnings expected to rise double digits as the Fed raises rates.
Old Second Bancorp pays a dividend, currently yielding 1.4%.
Should Old Second Bancorp be on your bank list?
2. Comerica (CMA - Free Report)
Comerica is a big Texas-based regional bank with a market cap of $11.7 billion. It has operations in several states, including Michigan. But Texas’ economy continues to be red-hot, driving bank earnings.
Shares of Comerica are up just 2% year-to-date and have actually fallen 1.6% in the last month despite the Fed beginning to raise rates.
Comerica now trades with a forward P/E of just 13.6 and pays a dividend, yielding 3.05%.
Is this a buying opportunity in Comerica?
3. JPMorgan Chase (JPM - Free Report)
JPMorgan Chase is a large cap bank with a market cap of $393 billion. It is considered to be one of the best of the large cap banks.
But shares are down 15.8% in 2022 and have fallen 0.8% in the last month.
JPMorgan Chase now trades with a forward P/E of 12.3 and pays a dividend, currently yielding 3%.
But is JPMorgan Chase a buying opportunity or is it too risky with the uncertainty in the global economy?
What Else Do You Need to Know About Rising Rates, Recessions and Stock Investing?
Tune into this week’s podcast to find out.