Bank of America has spotlighted three sectors that could benefit from the Federal Reserve's rare dual approach of rate cuts and rising corporate profits.
What Happened: Savita Subramanian, BofA's head of U.S. equity and strategy, referred to this situation as a "rare double whammy of stimulus" during her appearance on CNBC on Monday.
She recommended investors focus on value stocks in real estate, financials, and energy sectors.
Subramanian noted that value stocks, which trade below their fundamental value, tend to outperform when profits rise and rates fall. This scenario reduces the need for hedging and encourages investment in higher-upside names.
"I think about where these assets sitting in retiree accounts and money market funds are going; I think they're going into safe, stable income. That's more value than growth," she said.
Real estate benefits from significant investments in data centers, crucial for artificial intelligence infrastructure, while financials and energy sectors have improved their quality and capital returns since the last decade.
Subramanian emphasized the appeal of high dividends in these sectors as short-term yields decline, making dividend-yielding stocks attractive for income-seeking investors.
The following ETFs are notable performers within their respective sectors. In the real estate category, iShares Core U.S. REIT ETF (NYSE:USRT), Schwab U.S. REIT ETF (NYSE:SCHH), and SPDR DJ Wilshire REIT ETF (NYSE:RWR) stand out as top options.
In the financial sector, SPDR S&P Regional Banking ETF (NYSE:KRE), iShares U.S. Regional Banks ETF (NYSE:IAT), and SPDR S&P Bank ETF (NYSE:KBE) have emerged as leading performers.
For those looking into energy investments, Direxion Energy Bull 2X Shares (NYSE:ERX), Fidelity MSCI Energy Index ETF (NYSE:FENY), and SPDR Select Sector Fund – Energy Select Sector (NYSE:XLE) represent some of the top options.
Why It Matters: The identification of these value sectors comes at a time of significant economic and political uncertainty. Investors are currently grappling with U.S. economic uncertainty, shifts in Federal Reserve policy, and the upcoming presidential election.
The CBOE Volatility Index (VIX), a key gauge for measuring protection against stock market fluctuations, has climbed to around 20, a significant rise from its 2024 average of 14.8. This surge in volatility is a typical pattern during election years, as investors weigh the market implications of policy proposals from candidates.
Steve Eisman, known for his role in predicting the 2008 financial crisis, recently withdrew his prediction of a Trump victory, adding uncertainty to market forecasts.
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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
