The stock market has been on a roll lately, with the S&P 500 soaring 13% since June 16 amid optimism that the Federal Reserve won’t raise interest rates much more.
But now Fed officials are making clear that their rate hikes could continue for a long time. And keep in mind that the S&P 500 remains down 13% year to date.
So the $64,000 question is whether the stock market will continue its recent rebound. That could happen in the short term, Goldman Sachs strategists wrote in a commentary.
“In recent weeks, there has been a partial turn in [investors’] positioning and sentiment from very bearish levels after a rough first half of the year, with … positioning rebounding from historical lows,” they said.
“We think a further increase in positioning is possible near-term, which could further support the current rally.”
Long-Term Doubts
The picture is different for the long term. “Without clear signs of a positive shift in macro momentum, temporary rerisking could actually increase risks of another leg lower in the market,” the analysts said.
“This is particularly the case if the positive shift is driven by the systematic community and not by fundamental investors.” The systematic community refers to investors who trade based on computer programs.
“Therefore, despite the recent rebound in our positioning indicator, we are not convinced that we are past the true trough in positioning just yet,” the analysts said. “We think the path from here is likely to become more dependent on macroeconomic data.”
So what’s happening with macroeconomic data? The economy is sagging. It shrank 0.9% annualized in the second quarter, after a 1.6% contraction in the first quarter.
And many experts say the Fed’s rate hikes will throw us into recession. So which stocks might investors turn to as protection against an economic downturn?
Recession-Resistant Stocks
Morningstar defines “recession-resistant stocks [as] stocks of companies whose products and services consumers will continue to purchase no matter the economic climate.”
The idea is that in a slowing economy, people will still go to the doctor, will continue to pay their utilities and will still pop down their favorite food and drinks, Susan Dziubinski, director of content for Morningstar.com, wrote in a report.
Morningstar put together a list of the 10 most undervalued recession-resistant stocks covered by its analysts. Undervalued stocks are those trading below Morningstar analysts’ fair value estimates.
Here’s the list starting with the most undervalued, as of Aug. 1.
1. Anheuser-Busch InBev (BUD)
2. Imperial Brands (IMBBY)
3. Zimmer Biomet (ZBH)
4. Medtronic (MDT)
5. Gilead Sciences (GILD)
6. Roche (RHHBY)
7. GSK (GSK)
8. British American Tobacco (BTI)
9. Ambev (ABEV)
10. Veeva Systems (VEEV)
