We're seeing another sell off day in the market, which was expected. As conditions change, so must our investment roadmap so here's an update on the latest and why we're seeing a pullback in stocks.
The yield on the 10yr treasury note is going higher, which always sparks a short-term sell off. At the beginning of 2021, the yield was .93% and today it's 1.29%. The idea behind the rise is that as the economy heats up, stimulus funds will work their way through the economy and spark inflation. As inflation rises, so do interest rates. Higher rates mean pumping the breaks on growth so it's indeed a domino effect.
Our investment thesis in a rising rate environment >> CASH RICH companies with little debt like healthcare and technology; Banks because they make more money on higher rates and QUALITY market leaders.
Losers in a rising rate environment will be dividend stocks, REITs, Consumer Staples and any high yield and long-term bonds.
There is a silver lining: rate hikes should be viewed as positive because it means economic activity is accelerating. The demand for money goes up, hence, rates can rise to meet such increased demand. Stocks overall do fine with rising rates but pay off your credit cards now because that rate is the first to go up! Ladies and gents, the tradeoff to the recoverED economy is here. It's probably a year off but the market is pricing it in now.
All of the PRO Portfolios adjust for these changes so we'll be taking advantage of the dip in stocks. Time to go shopping!