By Christine David
How should you invest in Q2 2022?
Most investors agree that stocks are not off to a great start this year. Alarmed by the potential of monetary tightening and more expensive debt, market participants sold shares across the board. Technology companies were among the losers as their valuations dropped considerably.
This led many to lose considerable amounts in share value - especially the richest people across the globe (except Warren Buffet, who managed to earn a couple of billion dollars despite everything). Many expect the current sell-off to continue. However, there are some reasons to be slightly optimistic in 2022.
The Fed is expected to raise interest rates soon. This means that the cost of borrowing money will increase. Despite this, the rise in interest rates will still be small when compared to historical rates. The cost of borrowing money is still low when assessing it at a longer time frame.
Growth stocks are still attractive
Growth stocks, such as those included in Standard and Poor’s S&P 500 Growth index, are expected to make a comeback in the second quarter of 2022. Those stocks have outperformed the main S&P 500 index by a good margin.
Even though those stocks may not deliver exceptional performance in the short term, chances are that they will show growth in the longer term, as they are chosen based on many factors including growth in sales. Technical analysis shows those stocks might shine once again after this recent decline. Investors can trade online on the value of an ETF that invests in growth stocks and will likely need a broker such as SquaredFinancial to do so.
Since value stocks may also rise, as investors want to take advantage of their low prices, combining value and growth stocks will likely give you an edge in the market.
Stocks of financial companies are also likely to benefit
Banks and other financial companies will likely benefit
In general, financials are likely to rise in a rising rate environment. This is due to the increase in the spreads that banks rely on to earn income - the difference between what banks pay to depositors and what they charge borrowers. Rising rates will mean that banks can charge their borrowers higher interests and increase their earnings.
Moreover, the share prices of many financials are currently undervalued, adding to their appeal. Those stocks are likely to see their prices rise given the current monetary hawkishness.
Healthcare stocks remain attractive even in the post covid era
In the midst of COVID-19, stocks of key healthcare companies, especially Moderna, Pfizer, and others at the forefront of manufacturing vaccines, benefited greatly. They saw price rises and outperformed the wider market. In the past, healthcare stocks saw their valuations appreciate at times when the Fed was hiking rates. Those stocks are also a good addition to your portfolio currently, as they tend to be less affected by the business cycle.
Summary
The near future will see changes in monetary policy settings, which means that investors must learn to adapt. Financials, healthcare, and communication services stocks are likely to do well. Even though technology stocks are expected to underperform, this does not mean they will decline in value. Your best option is to choose a broker, such as SquaredFinancial, that enables you to build a balanced portfolio which will overall help you manage risk well.
