Concerns over inflation and fears of interest rate hikes came back, haunting investors on May 22 after the minutes of the Federal Open Market Committee’s (FOMC) Apr 30-May 1 policy meeting were released.

The minutes revealed that the Federal Reserve remains concerned over rising inflation, which created panic among investors, leading to a massive selloff. All three major indexes that were on a rally retreated sharply, with the Dow recording its worst session in May, after hitting an all-time high last week.

The Dow, the S&P 500 and the Nasdaq ended 0.5%, 0.3% and 0.2% lower, respectively.

Wall Street had a solid first quarter before the rally briefly paused in April. The month of May has particularly been impressive for markets, with the Dow, the S&P 500 and the Nasdaq notching new all-time closing highs.

However, the upbeat sentiment was dampened following the release of the minutes of the FOMC policy meeting, which showed that there has hardly been any progress in recent months on lowering inflation.  

Inflation rose in the first three months of the year before showing signs of cooling in April. The consumer price index (CPI) rose 0.3% month over month and 3.4% on a year-over-year basis.

Core CPI, which excludes volatile food and energy prices, rose by 0.3% in April from the previous month, following a 0.4% increase in the first three months of the year. Year over year, CPI increased by 3.6% in April, representing the smallest monthly rise since April 2021.

However, inflation remains a lot higher than the Federal Reserve’s 2% target. The minutes also revealed that “various participants” are in favor of interest rate hikes if inflation fails to move lower in the near term.

Higher interest rates do not bode well for the broader economy and could keep markets volatile for a longer period.

Our Choices

Given this situation, it would thus be wise to invest in defensive stocks like utilities and consumer staples like Portland General Electric Company (POR Quick QuotePOR - Free Report) , Atmos Energy Corporation (ATO Quick QuoteATO - Free Report) , Pinnacle California Water Service Group (CWT Quick QuoteCWT - Free Report) , PepsiCo, Inc. (PEP Quick QuotePEP - Free Report) and McCormick & Company, Incorporated (MKC Quick QuoteMKC - Free Report) .

Also, these belong to the category of low-beta stocks (beta greater than 0 but less than 1). Hence, the recommended approach is to invest in low-beta stocks with a high dividend yield and a favorable Zacks Rank. Each of the stocks has a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Portland General Electric Company is a vertically integrated electric utility that serves residential, commercial and industrial customers in Oregon. POR has more than a century of experience in power delivery. Portland General Electric Company generates power from a diverse mix of resources, including hydropower, coal and natural gas.

Portland General Electric Company has an expected earnings growth rate of 29.4% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.7% over the last 60 days. POR presently carries a Zacks Rank #2. Portland General Electric Company has a beta of 0.56 and a current dividend yield of 4.19%.

Atmos Energy Corporation, along with its subsidiaries, is engaged in the regulated natural gas distribution and storage business. ATO serves nearly 3.4 million customers in more than 1,400 communities in eight states, from the Blue Ridge Mountains in the East to the Rocky Mountains in the West. Atmos Energyoperates more than 72,000 miles of transmission and distribution lines as well as 5,700 miles of interstate pipelines.

Atmos Energy has an expected earnings growth rate of 9% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.9% over the last 60 days. ATO presently has a Zacks Rank #2. Atmos Energy has a beta of 0.66 and a current dividend yield of 2.72%.

California Water Service Group is one of the largest investor-owned water utilities in the United States. CWT has six subsidiaries — California Water Service, Washington Water Service Company, New Mexico Water Service Company, Hawaii Water Service Company, CWS Utility Services and HWS Utility Services.

California Water Service Group has an expected earnings growth rate of 246.2% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 40% over the last 60 days. CWT currently carries a Zacks Rank #1. California Water Service Group has a beta of 0.47 and a current dividend yield of 2.1%.

PepsiCo, Inc. is one of the leading global food and beverage companies. PEP’s complementary brands/businesses include Frito-Lay snacks, Pepsi-Cola beverages, Gatorade sports drinks, Tropicana juices and Quaker foods. PepsiCo serves customers in more than 200 countries and territories.

PepsiCo has an expected earnings growth rate of 7.2% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.2% over the last 60 days. PEP currently has a Zacks Rank #2. PepsiCo has a beta of 0.52 and a current dividend yield of 2.79%.

McCormick & Company, Incorporated is a leading manufacturer, marketer and distributor of spices, seasonings, specialty foods and flavors to the entire food industry across the globe. MKC’s key sales, distribution and production facilities are located in North America and Europe.

McCormick & Company’s expected earnings growth rate for the current year is 7.4%. The Zacks Consensus Estimate for the current-year earnings has improved 1.1% over the past 60 days. MKC currently has a Zacks Rank #2. McCormick & Company has a beta of 0.73 and a current dividend yield of 2.27%.