By Michael Brush
Barish likes Sysco /zigman2/quotes/205335941/composite SYY -4.72% as a reopening play because it supplies food and equipment to restaurants. He also cites Bed Bath & Beyond /zigman2/quotes/209801102/composite BBBY -6.24% in retail, a turnaround led by Anu Gupta who brings experience from Target. The home-goods chain is improving the business by reducing the number of products on offer, cutting back on coupons and introducing store brands.
Sandy Villere, portfolio manager with Villere & Co. in New Orleans, also thinks it makes sense to stay with reopening plays — because the projected Fed rate hikes are in the distant future. “If rates are going to stay low until the end of 2023, that is still a long time to have low rates. I am not going to cash any time soon.”
He likes the casino company Caesars Entertainment /zigman2/quotes/205281174/composite CZR -2.92% in part because it, too, has exposure to online gaming through its recent acquisition of William Hill. He also owns the bank First Hawaiian /zigman2/quotes/209814536/composite FHB -4.76% , which should benefit from a lift to the Hawaiian economy as tourists come back.
3. Be careful with meme stocks and cryptocurrencies
The Fed sent a confusing mixed signal on Wednesday, points out Roland, the John Hancock Investment Management strategist. On the one hand, it clearly stated it thinks the recent inflation spike is transitory. This makes sense because a lot of the inflation spike is linked to supply-chain issues and shortages. The recent sharp rise in inflation is also a bit of a mirage since the comparison is to temporarily suppressed prices during the depths of the pandemic a year ago.
But on the other hand, the Fed pulled forward the timeline for rate hikes. “If they believe inflation is transitory, why are they stepping up rate-hike expectations? One theory is the Fed is concerned about excesses in the market in meme stocks and cryptocurrencies,” says Roland.
Excess liquidity created by the Fed and spending by politicians in Washington have clearly contributed to these pockets of speculative excess. The Fed may be interesting in curtailing the excesses contributing to huge spikes in bitcoin /zigman2/quotes/31322028/realtime BTCUSD +0.83% , and stocks like GameStop /zigman2/quotes/203755179/composite GME -5.69% and AMC Entertainment /zigman2/quotes/200235402/composite AMC -3.24% .
4. Trim real estate, energy and materials stocks
For Tim Murray a capital market strategist in the multi-asset division of T. Rowe Price, the big takeaway on the Fed this week is that it is getting more vigilant about inflation. “The Fed is no longer on autopilot,” he says.
That’s bad news for areas of the market that benefit the most from inflation. This means companies with exposure to real assets that go up in value with inflation — like real estate, energy and materials. But Murray doesn’t think the Fed will be so vigilant that it stamps out economic growth. So, there’s life left in other cyclical stocks in sectors like industrials.
5. Don’t lose sleep worrying about a taper tantrum
Tapering is on the table now, and it is likely to start by the end of the year. In the past, this has created big selloffs in the S&P 500 /zigman2/quotes/210599714/realtime SPX -2.27% , Nasdaq Composite /zigman2/quotes/210598365/realtime COMP -2.23% and the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -2.53% – known as taper tantrums. Will we get a repeat?
“Probably not,” says Murray. “In 2013 investors were not expecting it, whereas this time the Fed has been preparing everyone for it.”
Michael Brush is a columnist for MarketWatch. At the time of publication, he owned ASAN and PENN. Brush has suggested MSFT, ASAN, PENN, UBER, LYFT, TGT, CZR and AMC in his stock newsletter, Brush Up on Stocks. Follow him on Twitter @mbrushstocks.