No one can predict the future. A smart investor does not follow trends, react to the market, or try to time it. Yet, many are still curious on what the market does, so we chatted with top bloggers about what is the next investment trend they are watching.
The past two years have been a rollercoaster.
As pandemic lockdowns began, the S&P 500 Index bottomed to $2,304.92 on March 20, 2020, but then quickly rebounded on a continuous uptrend until it peaked at $4,796.56 on January 3, 2022. Since then, the S&P 500 has reversed and entered into a downward trend, closing at $3,749.63 on June 13, 2022, a year-to-date (YTD) decline of -22%.
While there are many reasons that have led to the current downtrend, including geopolitical tensions and supply chain constraints, rising inflation and interest rates have played starring roles.
Officially, this means the pandemic-era bull market has come to a close. But with this new chapter come new opportunities.
Today, there have been big trends that have emerged as we move through 2022, noticeably with dividend growth stocks and the energy sector, amongst others. As a smart investor, it helps to understand these trends while also remaining cautious to not accidentally rushing to jump on a bandwagon.
In this article, we talk to two popular investment bloggers about what trends and opportunities they are currently watching.
Some of their answers may surprise you.
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DISCLAIMER: The investment information in this article is not financial advice. All investing involves risk and investors are encouraged to speak with a professional wealth advisor before making any investments.
1. Dividend growth stocks outperforming tech stocks
Consumer prices in the US increased by 8.6% in May, leading to a new 40-year high, according to the New York Times.
But inflation is not an isolated US problem.
“A lot of countries are now suffering through the highest inflation in decades,” according to an NPR report in April, 2022. “In fact, 60% of the advanced economies in the world now have inflation. That’s above 5%. In more than half the developing world, inflation is over 7%.”
In response, the US Federal Reserve increased interest rates in May by half-a-percentage point, the highest increase in over two decades, in an effort to slow down the inflationary pressure on the economy.
Both rising inflation and interest rates have caused a decline in the prices of stocks as investors anticipate a slowdown in forward growth expectations, especially from smaller less-established companies that may not be able to acquire rescue financing. By June 2022, the S&P 500 Index reported a decline of -22% YTD.
Dividend Power, the first investment blogger we spoke to, observed that even previously high-flying technology stocks that are known for their large positive returns have not fared well. For example, the NASDAQ Composite Index, a tech-heavy index, hit a decline of -46% YTD in June 2022, sinking down much further than the YTD on the S&P 500 Index.
Though they have also been falling, Dividend Aristocrats, represented by the S&P 500 Dividend Aristocrats, had a YTD of -13% in June, which means this basket of companies has fared better than the S&P 500 Index, the NASDAQ Composite Index, VGT and IYW.
Besides weathering the storm better, the Dividend Aristocrats have steady revenue and earnings growth, which makes them attractive to investors, according to Dividend Power. It’s no wonder then that they have been growing faster than the general S&P 500 and the NASDAQ Index.
Ben Reynolds of Sure Dividend, the second investment blogger we spoke to, also highlighted the value of dividend-growth stocks in the current market, in his opinion. Reynolds is an advocate of “high-quality dividend growth stocks held for the long run.” Ben has a list of such stocks (called the Dividend Kings), which contains more than 40 stocks that have increased their dividend for more than 50 years.
The focus on dividend growth stocks in the current inflationary environment is not only coming from these two investment bloggers.
“Dividend-paying stocks have become a part of the conversation lately since they also protect your money against inflation, making them ideal for today’s market conditions,” said CNBC. “Large companies that have a long history of paying consistent dividends each year have something to their advantage in an inflationary environment: they can weather — and actually benefit — from higher prices.” Investing remains a patience game.
2. Investors are looking for safety assets
According to Ben, 2022 has seen investors move their money from technology stocks that have been underperforming towards assets that provide better protection and growth.
As a result, there has been a renewed interest in commodities.
“Moving into 2022, the attention paid to the commodities market has only intensified, especially with the geopolitical turmoil in Ukraine and Russia affecting critical commodities like oil, natural gas, and wheat,” said SoFi Learn, the education website of SoFi, a personal lending platform. “Prices of these key commodities have spiked as the Russian-Ukrainian conflict constrains supplies.”
This trend has matched the outperformance that has been witnessed in energy stocks, which were by far the best-performing industry during the first half of 2022. The Energy Select Sector SPDR Fund (XLE), an ETF of energy stocks, saw a YTD growth of 46.94% as of June 2022.
According to SoFi, the US real estate market has also continued to grow.
“During the first quarter of 2022, mortgage rates are rising at a record pace, with the average 30-year mortgage nearing 5% for the first time since 2018.” CNBC also notes that “Real estate traditionally does well during periods of higher inflation, as the value of property can increase. This means your landlord can charge you more for rent, which in turn increases their income so it is on pace with the rising inflation.”
Here, US REITs provide an accessible opportunity to easily take advantage of US real estate. “REITs provide natural protection against inflation,” according to Reit.com. “Real estate rents and values tend to increase when prices do. This supports REIT dividend growth and provides a reliable stream of income even during inflationary periods.” The dividends paid by REITs have outpaced inflation in 18 out of the past 20 years.
Finally, Gold ETFs have also provided some safety. The SPDR Gold Shares has a YTD of 0.95% at the time of writing, which means gold has held its own even in the current inflationary environment.
Smart investors will look to always properly diversify their portfolios. These ETFs can be purchased as part of a passive investing strategy, through Sarwa Invest, or an active trading strategy through Sarwa Trade.
3. The metaverse is gaining traction
The third investment trend, highlighted by Divided Power, is that the metaverse has been gaining traction as more established companies consider investing in it, as led by the company formerly known as Facebook.
“Meta Platforms (FB) is coming to market with an augmented reality headset and investing billions in the metaverse,” according to Dividend Power. “Disney (DIS) has hired a former Apple executive to lead its metaverse strategy. Microsoft is trying to acquire Activision Blizzard (ATVI) to expand its gaming footprint, but the deal will also make it a player in interactive gaming. Many other companies are following Meta’s lead.”
The metaverse is opening up various growth opportunities with gaming stocks (e.g. Roblox), stocks of companies investing in the metaverse (e.g. Meta Platforms, formerly Facebook), and those of companies supplying products that keep the metaverse running (e,g, NVIDIA, the semiconductor manufacturer).
(Once again, take this statement with caution, especially for new investors.)
“Internet companies are gearing up. They want to provide both the platform and the hardware, avoiding the type of missed opportunity realised years before when smartphone manufacturers were allowed to control the hardware and the operating software,” they said. “The big hardware companies are also racing to provide next-generation technology.”
Though the metaverse has not been immune from the current bear market causing declining prices in the tech sector, Blackrock believes that it is a big investment for the long-term: “The metaverse is just one reminder of the vast opportunity driving long-term return for investors across the technology universe.”
As a smart investor, taking a cautious look at companies that are building out metaverse could be worthwhile.
[For more on what to consider before choosing to invest in a stock, read “Key Lessons From Warren Buffett’s Top 10 Stock Holdings”]
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