Commodities, Cyclical Stocks Likely to Benefit When Fed Retests 'Taper Temperature' - S&P Capital IQ


The sectors that benefited most recently from the expectation that the Federal Open Market Committee would soon begin reducing the pace of its asset purchases -- these sectors being commodities and cyclical stocks -- are likely to be hot again when the Fed does begin the tapering, according to Sam Stovall, chief equity strategist at S&P Capital IQ.

Stovall noted while the FOMC elected not to begin the tapering of its bond purchases this month, it didn't repeal the possibility of tapering altogether. In turn, he said, investors should be considering if the sector rotation seen since May was historically consistent, where the yield on the 10-year Treasury note ultimately will stabilize, and how asset classes traditionally performed during periods of rising rates.

Stovall said rising rates "certainly have an effect on returns, especially over short periods of time." He sees the yield on the 10-year note stabilizing between 2.7% and 3.7% and hovering "near the low end of this range, due to a still weak economy."

With regard to asset classes, "commodities tend to shine during periods of rising yields, and cyclical stocks hold up surprisingly well. Bonds, on the other hand (and sometimes REITs), end up on the wrong end of the see-saw," Stovall said. "So when the Fed retests investors' taper temperature, even though past performance is no guarantee of future results, don't be surprised if these same sectors and asset classes end up running similarly hot and cold."

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

Copyright (C) 2014 All rights reserved. Unauthorized reproduction is strictly prohibited.

This article appears in: Investing , Commodities

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