Overview:
This September in the stock market has been full of disappointments. After a promising double bottom up on the 1 hour candlestick chart, many analysts were hopeful of a possible turnaround from previous losses sustained by inflation. A small turnaround did occur until prices were punched down by early August’s resistance levels. The market continued down 11% until it hit well respected support levels from the summer. Everyone held their breath on the 23rd of September when markets opened on that support level–and then plummeted right through it. The market is now at its lowest since mid July, down almost 10% this month.
Inflation:
What is inflation? The Wikipedia definition states that inflation is “a general increase in the prices of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reduction in the purchasing power of money.” So how does inflation affect us? You may notice that food prices are increasing, interest rates are ridiculously high, and many companies are increasing prices for their products. As inflation increases, your money is worth less and less. You simply can't buy as many goods and services with 100$ as you could a few months ago. Inflation is the highest that it has been since 1989, sitting at 8.3% as of September 13, 2022.
Interest Rates:
The Federal Reserve typically raises interest rates in order to fight runaway inflation. Raising interest rates makes it more expensive to pay back loans, mortgages, and car payments. This slows down economic activity because less people are using the bank to borrow money so less things are bought and therefore the economy has less stimulation, bringing inflation down. Interest rates are being hiked up by the Federal Reserve in order to stop inflation from rising and are currently sitting at 6.7% as of today. This is the highest they have been since 2008. In times like this, houses and cars especially are bought and financed less frequently due to how expensive it is.
Finn’s stock picks:
Let me preface this by saying that I am not a financial advisor and am not responsible for losses that may occur if you follow my advice. Stocks are split into several different groups called sectors. These sectors include: Financials, Real Estate, Consumer Discretionary, Information Technology, Materials, Consumer Staples, Healthcare, Energy, Communication Services, and Utilities. Fidelity has a helpful chart that outlines the performance of these sectors in different market conditions.
We are currently in a recession, so sectors that are performing well relative to the market include Consumer Staples, Healthcare, and Utilities. Consumer staples are things like food and other goods, Healthcare is hospitals and medical services, and Utilities is energy services, water, and natural gas for your home. Look at this graph. What do you notice?
This graph is based on % gained or lost, not price action. The three lines charted that are not red represent the performance of the 3 sectors I mentioned above. It can be inferred that the yellow line that represents Utilities, has the best performance. Investopedia gives us a handy list of utilities stocks with the most momentum from the past year. XLU, which is our utilities ETF, is listed as having high momentum but there are other good options on this list as well. When one is building a portfolio, it is important to diversify. This means to spread out your investments with lots of different sectors. Putting more of your portfolio into a sector that historically performs well during this time is wise, but it is important to do your due diligence and make sure that you only invest what you can afford to lose. I recommend buying utilities stocks like the ones listed below. Keep in mind that stock with high 12 month total returns can be considered volatile and therefore not safe to invest in, but that is for you to decide as investors.
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