As Fed members begin discussing tapering, these 2 stocks may be investors’ best bets to combat headwinds from the Fed now.
Stocks were mixed on Thursday as the market awaited news out of the Federal Reserve’s annual Jackson Hole summit on when the central bank might begin to tighten its policy.
But while the market waits for Fed Chairman Jerome Powell’s statement on Friday, a few of the central bank’s members were out today with talks of tapering.
St. Louis Federal Reserve President James Bullard, Kansas City Fed President Esther George, and Dallas Fed President Robert Kaplan all noted on Thursday that the economy can withstand a little less help from the central bank.
Bullard said, “I think we want to get going on taper. Get the taper finished by the first quarter next year. And then we can evaluate what the situation is and we’ll be able to see at that point whether inflation has moderated and if that’s the case we’ll be in great shape. If it hasn’t moderated, we’re going to have to be more aggressive to contain inflation.”
Kaplan too is worried about inflation and “excessive risk taking” that has led to “distortions” in financial markets, especially in bonds.
“Based on everything I’ve seen, I don’t see anything at this point that would cause me to materially change my outlook,” Kaplan said. “It would continue to be my view that when we get to the September meeting, we would be well served to announce a plan for adjusting purchases and begin to execute that plan in October or shortly thereafter.”
And Esther George said she believes the economy has reached the point where the Fed can begin pulling back on the monetary juice it has been providing the economy, starting with reducing the pace of its monthly asset purchases.
“That I think is appropriate given the progress we’ve seen,” George said. “It doesn’t mean that we will move all the way to neutral or tighter policy, but I think it’s a first step. Signs in the economy right now are showing that we’re reaching that point.”
“When you look at the job gains we saw last month, the month before, you look at the level of inflation right now, I think it would suggest that the level of accommodation we’re providing right now is probably not needed in this scenario,” she added. “So I would be ready to talk about taper sooner rather than later.”
As tapering is looking more likely in the near-term, Chantico Global’s Gina Sanchez said this week that there is one stock that looks like a good bet now to combat headwinds from the Fed.
“We think probably the most taper-resistant pick right now is something happening in the infrastructure play, and the infrastructure play leads us right to Nucor (NYSE: NUE),” said Sanchez, the CEO of Chantico Global and chief market strategist at Lido Advisors.
Nucor is up nearly 125% so far this year, and up 20% this month alone.
“It was already hot because steel prices were going up, and then the infrastructure bill came along and that was a big win,” Sanchez added. “This is the largest diversified player in the U.S. and it’s cheap. The thing about [tapering] is as soon as you hear taper, you start worrying about stocks that are overpriced but Nucor is a stock that is trading at about 8.5 times forward earnings.”
According to CNBC’s Jim Cramer, that infrastructure bill—which has already passed the Senate and is likely to pass the House next month—“takes the cyclicality out of Nucor,” adding that the need for steel will turn the stock into a multi-year “supercycle.”
“You should not take our profits initially because Nucor can double,” Cramer said. “The stock was at $60 and now it’s double. Could it double again? That’s a stretch, but it’s going to go higher.”
Piper Sandler’s Craig Johnson has another stock in the industrials sector in mind, one that is also set to be a big beneficiary of the bipartisan infrastructure bill.
“When you look at this group right now, we’re testing to 2018 highs, and we’re also getting very close to reversing the downtrend channel that the mining diversified group has been in since the 2006 – 2007 time frame,” Johnson, the firm’s chief market technician, said.
“I would take a look at Cleveland-Cliffs (NYSE: CLF),” Johnson added. “You can see a clear higher low that’s been made, you’re breaking out above the upper end of the resistance and on the shorter term, the trend is our friend here.”
