That strategy is doing much better than the indexes, with a return of about 2.5% so far this year. When it comes to bank stocks, you want high dividend-paying bank stocks that trade with a low price-to-earnings (P/E) ratio. My Favorite Small Bank Stock Strategy - and My Favorite Bank Stock I'm going to name my top pick here in a second. That might not seem like much, but I bet you the investors who have ridden the Ark funds down to huge, double-digit losses would trade places with the owners of the bank ETF in a heartbeat.īut QABA isn't my recommendation today - I'm only looking at sector performance. The QABA index itself is down about 0.4% for 2022, but it's already bouncing back strongly. Why? Because higher interest rates mean higher net interest margins, and that means higher profits for banks, and that means higher prices for those banks' stocks. Community banks love higher interest rates. It's holding its own this year, unlike a lot else. Take a look at the FirstTrust NASDAQ ABA Community Bank Index Fund (NASDAQ: QABA). There is one exception to this rule - especially today, when rates have been so low for so long. There have been exceptions, of course, but "Don't Fight the Fed," or "Ye King's Own Banker," or some variation on that theme, has been a useful rule of thumb for the past 350-odd years central banks have existed. If the Fed is raising interest rates, stocks are most likely going to head lower. If the Fed is cutting rates, stocks are probably going to go higher. It comes from the late Great Marty Zweig, who insisted that the best way to lose money was to fight the Fed.
Now, this would be a good time to mention one of the earliest lessons of my career. So that's two dings against the kinds of flashy stocks people just couldn't get enough of during the pandemic. Lower valuation means lower stock prices, especially for companies with strong revenue growth but no profits. Higher rates also lead to lower valuations using most of the valuation models used by Wall Street analysts and investment bankers. That's bad news for most companies because the cost of money - borrowing it and repaying it - goes up. Investors panic about inflation because higher inflation means higher interest rates. I'll name the sector, and the stock to buy, right here. I'm not talking about options or some exotic derivatives, either I'm talking regular stocks you can buy and sell all day with the push of a button. It might feel like there's no place to hide, but I'm here to tell you, the perfect getaway is here in the stock market if you know where to look for it.
Cathie Woods, Wall Street's favorite stock-picker in 2020 and most of 2021, is down nearly 28% for the year, going by her ARK Innovation ETF (NYSEArca: ARKK). The S&P 500 and Russell 2000 are both down nearly 10% for the year the tech-heavy NASDAQ 100 is down nearly 15%. Sanctions against Russia are just starting to bite there, but we haven't seen the effects ripple through the world economy yet outside of the energy sector. There's some truth to the popular explanation that it's supply chain-related, but the truth is we're seeing wage inflation, as well, and that's not going to resolve itself quickly. The war in Ukraine is raging, of course, and inflation is running hotter than at any point in the last 40 years. There's no sugar coating it: The past few weeks have been rough sledding for most stocks. Save my name, email, and website in this browser for the next time I comment. Sign me up for the Money Morning newsletter
Your email address will not be published. Or to contact Money Morning Customer Service, click here. Comment on This Story Click here to cancel reply.
0 kommentar(er)
