Cathie Wood just warned of another ‘Great Depression’ if the Fed continues to ignore these signals – here are 3 safe haven sectors for proven protection

'Setup will be more like 1929': Cathie Wood just warned of another 'Great Depression' if the Fed continues to ignore these signals – here are 3 safe haven sectors for proven protection

‘Setup will be more like 1929’: Cathie Wood just warned of another ‘Great Depression’ if the Fed continues to ignore these signals – here are 3 safe haven sectors for proven protection

The US Federal Reserve has aggressively raised interest rates in an effort to control inflation. According to Cathie Wood of Ark Invest, this could have serious consequences.

In a series of tweets on Saturday, Wood compared the current situation to events leading up to the Great Depression.

The Fed raised rates in 1929 to quell financial speculation and then, in 1930, Congress passed Smoot-Hawley, introducing 50%+ tariffs on over 20,000 commodities and sending the world economy into the Great Depression. pushed,” says Wood. “If the Fed isn’t running, the setup will be more like 1929.”

The superinvestor points out that the US central bank is “ignoring deflationary signals”. At the same time, she warns that the Chips Act “might hurt commerce more than we realize.”

Of course, not all assets are created equal. Some — like the three listed below — might do well even if the Fed doesn’t soften its aggressive stance.

Do not miss it

Property

It may seem counterintuitive to have real estate on this list. When the Fed raises its benchmark interest rates, mortgage rates tend to rise as well, so shouldn’t that be bad for the real estate market?

While it’s true that mortgage payments are rising, real estate has shown its resilience in times of rising interest rates, according to investment management firm Invesco.

“Between 1978 and 2021, there were 10 different years where the percentage of Federal Funds increased,” says Invesco. “Within these 10 years identified, U.S. private real estate outperformed stocks and bonds seven times and six times better U.S. public real estate.”

It also helps that real estate is a known hedge against inflation.

Why? Because as the price of raw materials and labor rises, new real estate becomes more expensive to build. And that drives up the price of existing real estate.

Well-chosen properties can cause more than just price increases. Investors also receive a steady stream of rental income.

But you don’t have to be a landlord to start investing in real estate. There are plenty of real estate investment trusts (REITs) and crowdfunding platforms that can put you on the path to becoming a real estate mogul.

Banks

Most companies fear rising interest rates. But for certain financial institutions, such as banks, higher rates are a good thing.

Banks lend money at higher rates than they borrow, pocketing the difference. When interest rates rise, the spread of how much a bank earns tends to widen.

Read more: You’re probably overpaying when you shop online – get this free tool before Black Friday

Banking giants are also currently well capitalized and have returned money to shareholders.

In July, Bank of America increased its quarterly dividend by 5% to 22 cents per share. In June, Morgan Stanley announced an 11% increase in its quarterly payout to $0.775 per share — and that’s after doubling its quarterly dividend to $0.70 per share last year.

Investors can also gain exposure to the group through ETFs such as the SPDR S&P Bank ETF (KBE) and the Invesco KBW Bank ETF (KBWB).

Consumer staples

Higher interest rates can cool the economy if it gets too hot. But the economy isn’t running too hot, and if Wood is right, we could be heading into a major recession.

Therefore, investors may want to look at recession-resistant sectors such as consumer staples.

Consumer goods are essential products such as food and drink, household items and hygiene products.

We need these things no matter how the economy is doing or what the rates of the federal funds are.

When inflation drives up input costs, consumer staples companies – especially those with entrenched market positions – can pass those higher costs on to consumers.

Even if a recession hits the U.S. economy, we’ll likely still see Quaker Oats and Tropicana orange juice — made by PepsiCo (PEP) — on families’ breakfast tables. Meanwhile, Tide and Bounty — well-known Procter & Gamble (PG) brands — will likely remain on shopping lists across the country.

You can access the group through ETFs such as the Consumer Staples Select Sector SPDR Fund (XLP) and the Vanguard Consumer Staples ETF (VDC).

What to read next

This article provides information only and should not be taken as advice. It comes without any kind of warranty.

Leave a Reply

Your email address will not be published. Required fields are marked *