What investors need to consider with growth and dividend stocks
10-year Treasury bonds are experiencing a massive slump of 46% since peaking in March 2020, after the realization of higher for longer interest rates has set in. Investors are now questioning if a recession will occur and how soon. Marketgauge.com Chief Strategist Michele Schneider joins Yahoo Finance to break down the recent slump in the bond market, what a recession could mean for the market, and what investors should consider for their portfolio moving forward.
Schneider warns investors in growth and dividend stocks: "The market may not necessarily crash so much, but it may take years possibly, two, three, or more years for those numbers to come back in terms of those growth stocks and even the dividend bearing stocks. You have to realize at what point are your dividends taking control of your life as opposed to watching the stock go down."
For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.
Video Transcript
RACHELLE AKUFFO: Obviously, we're in a higher for longer interest rate environment. Still seeing bonds thriving at the moment, I mean, having that bond route. Who gets stung the most. What kinds of investors, based on the inflows that you're seeing, are going to get stung the most here?
MICHELE SCHNEIDER: Well, people who don't know anything about trading commodities, which I'd love to talk about for a moment. But to answer your question, I think those that have really been sold two things. Number one is, growth stocks will always do well, no matter what. Relatively yes, but we know that they can fall under the pressure. In terms of that big crocodile chart that you're seeing, the spread between growth and small caps, with the jaws so wide, if small caps fall, we know the top jaw is going to have to fall as well.
And the other is who feel like we can do $1 down averaging, just keep buying dips, because if we go into not recession but stagflation, the market may not necessarily crash so much. But it may take years, possibly two three or more years, for those numbers to come back in terms of those growth stocks.
And even the dividend-bearing stocks, you have to realize at what point are your dividends taking control of your life as opposed to watching the stock go down. So the people who are passive investors always have the most to lose. And that's why we always try to educate people on having some kind of a risk parameter in their portfolio.
AKIKO FUJITA: So, Michele, let's talk strategy, where you're putting your risk on there. Transportation one sector you're looking at right now. I'm curious what part you find opportunities in because that's one, especially among carmakers, we've been talking a lot about with the UAW strike, with the transition we're seeing to EVs. Is that the area where you're increasing exposure?
MICHELE SCHNEIDER: Well, again, everything, if we have some kind of a liquidity crisis, is going to fall, including EVs, especially if it's more recessionary than stagflationary because people will not necessarily go out and buy EVs and production can get halted.
And right now-- it's interesting that you mentioned the strike because I have-- in terms of investing, we're very, very light. I look at the transportation IYT because it actually has been outperforming versus, let's say, the retail or the small caps. But that doesn't mean that outperforming is great performance. And the rally we've seen recently in Rivian and Tesla, again, has gone up but into resistance, not really wowing us yet.
So I'm looking at, in terms of investments right now, I had waited for this correction in a lot of the commodities, the soft commodities, natural gas being really big on my list, things that have to do with supply disruption. The strike, to me, is a potential indication that unrest could increase here. With so many issues that we have in this country, besides higher prices and higher interest rates and strikes and theft and government that seemingly is not necessarily engendering confidence, this tells me more of a stagflation is really what we prepare for.
And if that's the case, you want to look at some of those commodities as investments, possibly looking into the ags or DBA or natural gas or some of the companies that deal with delivery, like TK would be one or Scorpio Tankers. They are holding up in this environment so far.
RACHELLE AKUFFO: So only a confluence of issues the American economy facing here. Appreciate you taking the time to join us this morning. Michele Schneider, Marketgauge.com Chief Strategist. Thank you, as always.
