Safeguard Your Portfolio In A Volatile Market: 5 Value Picks
Zacks Investment Research | Dec 20, 2018 08:04PM ET
Wall Street has been reeling under severe volatility over the last three months. The recent rate hike, conflicting news related to trade war between the United States and China and fear of a global economic slowdown have resulted in market skepticism regarding the future growth potential of U.S. stocks.
Despite the negatives, fundamentals of the U.S. economy remain strong. However, investors should be prepared to minimize fluctuations in their portfolio and consequently rebalance it with suitable financial assets to maintain stability. At this stage, it would be a prudent decision to pick up value stocks with a favorable Zacks Rank.
Fed Hikes Rate and Pursues Quantitative Tightening
On Dec 19, the Fed raised benchmark lending target rate by 0.25% to the range of 2.25-2.50%. This was the fourth rate hike by the central bank in 2018. However, the Fed hinted that it may lower the pace of rate hikes from the previous projections of three to two times for 2019. Despite the Fed’s assurance of lowering the pace of rate hikes, Wall Street remained extremely volatile in the last two days.
Investors remain highly concerned about the continuation of Quantitative Tightening through which the central bank is reducing the size of its balance sheet by $50 billion each month by redeeming government debt and mortgage bonds. This implies that a massive $600 billion will not be invested in sovereign bonds in 2019. This will significantly reduce demand for U.S. government bonds, resulting in lower bond price and higher yields. Consequently, interest rate will go up in the long term.
Fear of Partial Government Shutdown
On Dec 18, Senate Majority Lead Mitch McConnell said that a proposed short-term government funding plan worth $5 billion border security fencing was rejected by Democrat representatives. Notably, without the approval of a spending bill, several government agencies face the risk of a shutdown.
On Dec 20, President Trump refused to sign a Senate-approved appropriations bill that would avert a government shutdown. Trump stated categorically as long as both houses of Congress allocate $5 billion in funds for expansion of the U.S. southern border wall, he will not sign the bill. Investors fear that a partial government shutdown is likely to start from mid-night Dec 21.
Our Top Picks
The U.S. markets remain volatile so far in 2018. Trade-related concerns, geopolitical conflicts and inflationary concerns will certainly lead to more fluctuations at least in the short-term. This in turn will force investors to put their money in safe assets.
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At this juncture, it will be a prudent decision to buy value on the dip stocks that could prove to be valuable once the rally resumes. We have selected four stocks with a Value Score of A and a Zacks Rank #2 (Buy). You can see Zacks Investment Research
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