Time for a bit of trading fun.
We've witnessed a flight to safety over the past week as the emerging markets have been submerging. That flight only accelerated on Tuesday in the shadow of the rapidly deteriorating Italian debt crisis, sending the 10-year U.S. Treasury yield down some 16 ticks to about 2.77%.
First, some broad observations:
- The Italian crisis will likely result in a downgrade of global economic growth.
- Global interest rates (and monetary policy) will stay lower for longer.
- The U.S. dollar will likely continue to be strong, putting 2018-2019 earnings forecasts for S&P 500 undefined companies under some pressure because multinationals with strong export businesses predominate the index.
And as for specific sectors and stocks, what I foresee is:
- Consumer Staples. These stocks should pick up a bid. That includes Campbell Soup (CPB) - Get Campbell Soup Company Report , Kraft Heinz (KHC) - Get Kraft Heinz Company (KHC) Report and Procter & Gamble (PG) - Get Procter & Gamble Company Report , all of which I own. Consumer-staple stocks are defensive in nature and often trade on a dividend-yield basis. With Treasury rates plummeting, these stocks should sell at a lower dividend yield and higher share price.
- Bank Stocks. Bank stocks will likely suffer over the short term as interest rates drop in response to the Italy news. To me, this provides a most attractive entry point for investors who have an intermediate- to longer-term time frame. Personally, I plan to super-size my holdings in Bank of America (BAC) - Get Bank of America Corp Report , Citigroup (C) - Get Citigroup Inc. Report and JPMorgan Chase (JPM) - Get JPMorgan Chase & Co. (JPM) Report . Note my stake in Wells Fargo (WFC) - Get Wells Fargo & Company Report is already super-sized.
Doug Kass is the president of Seabreeze Partners Management Inc. Under no circumstances does this information represent a recommendation to buy, sell or hold any security.