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February 11, 2022
The recovery rally was nice while it lasted.
Unfortunately, fear is creeping right back into markets.
All thanks to sky-high inflation, with the consumer price index up 7.5% year over year.
“This inflation data today came like a punch in the stomach for Jay Powell and his colleagues,” Nathan Sheets, global economist at Citi Research, told CNBC. “Their narrative is that as the year progresses, we should see inflation start to abate and to come on down. And there was not even a hint of that in the January data.”
It’s wildly out of control.
And one of the only ways to cool that off is with Fed rate hikes. In fact, Goldman Sachs now sees the Fed raising rates about seven times this year.
“We see the arguments for a 50bp rate hike in March. The level of the funds rate looks inappropriate, and the combination of very high inflation, hot wage growth and high short-term inflation expectations means that concerns about falling into a wage-price spiral deserve to be taken seriously,” noted the firm.
But don’t panic.
Even with rate hikes, and a potential market pullback, there are ways to protect your portfolio.
One way is to invest in volatility ETFs, such as the ProShares Ultra VIX Short-Term Futures ETF (UVXY), which was designed to match two times (2x) the daily performance of the S&P 500 VIX Short-Term Futures Index. The UVXY last traded at $14, and could see $20, near term.
Another way is to invest in utility stocks, like NextEra Energy (NEE).
That’s because even in the worst of times, we still need utility services, like electricity.
Even better, with a dividend yield of 2.03%, analysts and insiders seem to like the stock. BMO Capital analysts for example raised their price target on NEE to $98 from $89 with an outperform rating on the stock.
A third way is to consider dividend stocks, like Walgreens Boots Alliance (WBA) – which carries a dividend yield of 3.88% at the moment.
Again, don’t panic. Markets have been well aware of sky-high inflation, and the need for interest rate hikes. So, a good deal of that fear is already priced in.
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