With the Fourth of July in the rear-view, we have officially entered the very heart of summer. So what will the dog days look like for the markets? Can you make any money in the summer stock doldrums? Breakout welcomed Carol Pepper, CEO of Pepper International, to offer some thoughts.
For starters, Pepper says her high net worth clients are making sure they're not in the market 100%. "They're having at least 30-40% in short term corporate bonds because unlike governments that are broke, corporations still have money." Pepper notes that while it may seem daunting to follow the lead of the folks that throw around millions like Monopoly money, the theory is the same. With corporate bonds yielding about 5%, the average Joe may not get rich off of them, but it's better than losing that money in a tough summer market.
It's no surprise then that Pepper suggests investors "look for things that have income, let's look for things that have cash flow that are not affected just by the stock market." She offers an ETF like the iShares Dow Jones Select Dividend Index (DVY) as an example. The keys for her are that the ETF is large, liquid and unlevered. Just how large is "large" when looking for a good ETF to invest in? Pepper says if it's not at least $1 billion, don't touch it. Additionally she points out that companies like those in the DVY that strong enough to pay out those dividends will win out over those that are not. "In a weak market the market likes cash flow and that's what you get out of dividend stocks."
Moving away from the dividend payers Pepper also puts her seal of approval on the SPDR S&P Utilities Sector ETF (XLU). "People have to have electricity, they're always keeping the lights on. These are basic, basic things, but in a risky market basic works for you."
Much like those corporate bonds, a utility ETF isn't going to make you rich but Pepper says it's a good place to wait through the summer.
As for when to consider getting more fully back into the market, she says "we could have a nice fall rally if we get through the summer without any major disasters." Still, Pepper reminds investors not to be too scared off by the rocky summer: "don't take the risk off necessarily, but understand that you're gonna have to live through probably a couple of ugly months and then by the fall you'll be rewarded for holding those positions."
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