Outlooks for the U.S. economy have continued to darken as the year unfolds, leaving investors unsure and uneasy about if and where to move their money.
Investors are currently waiting for better inflation data, for central banks to pivot, for companies to report earnings while also waiting to see if a global recession is imminent and if the Russia-Ukraine war can be de-escalated, according to Kristina Hooper, chief global market strategist for Invesco.
“So what should investors do in a holding pattern? Well, obviously, wait. And don’t overreact,” Hooper wrote in an October 10 insight. “Don’t assume the Fed or other central banks will be pivoting momentarily because ISM Manufacturing New Orders fell into contraction territory, and don’t assume the Fed will remain aggressive ad infinitum just because the US jobs report for September didn’t indicate the economy is slowing quickly enough for the Fed. In short, I believe it’s important to stick to the long-term plan.”
Hooper said one area where investors may be underrepresented in dividend-paying stocks. Two funds that offer exposure to dividend stocks include the Invesco Dividend Achievers ETF (PFM) and the Invesco S&P 500 High Dividend Low Volatility ETF (SPHD).
The S&P 500 Low Volatility High Dividend Index, tracked by SPHD, has managed to close out the first three quarters of the year, declining just 11.0%, compared to the S&P 500’s decline of 23.9% during the same period. PFM has also outperformed the S&P 500 year to date through the end of the third quarter while collecting dividends.
“I believe it makes sense to have exposure there, as one gets ‘paid to wait’ through dividend payments,” Hooper wrote. “Those payments can be an important component of one’s portfolio when we’re all stuck in a holding pattern. And, for those who are overexposed to cash, as hard as it sounds, I believe investors should be getting ready to reposition for a recovery.”
“I suspect we will learn a lot from the next few months, as long as we don’t overreact and keep our eyes on long-term goals,” Hooper added.
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