Staples, Utilities and REITs Look Risky as Valuations, Bond Yields Rise

NEW YORK (TheStreet) - U.S. stocks are notably lower on Tuesday, with the S&P 500 falling 0.9% as bond yields continue to move higher ahead of Friday's non-farm payrolls report for the month of April. 

Before deciding whether the market will rally or pullback, investors should wait to see the results from the labor report, Joseph Terranova, senior managing director at Virtus Investment Partners, said on CNBC's "Fast Money Halftime Report." 

As bond yields continue to rally, Terranova said he doesn't like stocks that have high dividend yields, as they become less attractive compared with higher-yielding bonds. These include utility stocks, REITs, and MLPs

Even if interest rates and bond yields don't go higher, it's hard to buy MLPs, REITs, utilities and consumer staples stocks because the valuations are far too high, according to Rich Pzena, co-founder and chief investment officer at Pzena Investment Management

Outside of these sectors, equities are "fairly priced," while forward earnings multiples are roughly in line with their long-term averages, Pzena added. Interest rates however, remain "way, way, way below average," he said. 

It seems like investors have had trouble believing in the validity of the market rally over the past few years, Terranova said. Because of this, many investors have been buying "high quality" stocks like utilities and staples, but in the process, they've pushed the valuations up to levels that are too high. 

"The economy is looking better in my view," said Stephen Weiss, founder and managing partner of Short Hills Capital Partners LLC. Because of this, bond yields have been going higher as investors sell out of bonds. Stocks continue to look like the most attractive investment around. 

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