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), 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.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV