The argument has been made that as the government pours money into the system, inflation will drive the Federal Reserve to increase interest rates. Most investors know that typically when bond yields increase, stocks will fall.
That's not the case in a deflationary environment. With excess production in the U.S., Sonders makes the argument that we are more likely in a deflationary environment -- with more goods available than we have the money for -- than an inflationary one. Thus, any move by the Fed to eventually tighten monetary policy and raise interest rates likely won't put downward pressure on the stock market.
As more money is shifted toward equity investments, cyclical stocks will be the ones that benefit the most. Sectors like industrials and materials are where you'll want to be invested. Stocks that fit the bill and have been highlighted on the Real Money Pro Web site include automotive supplier American Axle (AXL - Get Report), and specialty chemical company Solutia (SOA). Defensive stocks, like utilities and consumer staples, will be left in the dust despite offering decent dividend yields.
-- Written by Lindsey Bell in New York.