Jubak's Journal
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5 stocks safe from rising rates
The Fed didn't surprise anyone with its 12th straight rate hike. But with inflation looming and more rate increases all but certain, it's time to seek shelter.
By Jim Jubak
No surprises.
When the Federal Reserve finally raised short-term interest rates to 4% on Nov. 1, the move was exactly what the stock and bond markets had expected. The Federal Open Market Committee didn't even change its standing language: Monetary policy remains accommodative (that's Fed speak that means interest rates are still low enough to encourage economic growth), longer-term inflation expectations remain contained and interest rates will be raised at a measured pace.
On the non-news, the Treasury bond market rallied, the dollar moved slightly lower and stocks moved up from the negative territory that they'd occupied before the announcement.
Yep, nothing here like the nightmare scenarios that have kept the stock and bond markets on edge for most of October. No heightened warning about inflation. No speed-up in the pace of interest rate increases. No indication of panic or even heightened anxiety from the Fed.
A seasonal, and short, rally
But don't kid yourself. No surprises isn't the same as good news. Inflation is a potential problem: "The cumulative rise in energy and other costs have the potential to add to inflation pressures," the Fed said. And there's no sign that this interest rate increase or the almost dead-certain one coming at the Dec. 13 meeting is going to be the last increase either. The "smart money" is betting that the new Ben Bernanke-led Fed will want to show its inflation-fighting colors by raising rates at the March 28 meeting, whether or not Alan Greenspan raises interest rates at his farewell, the Jan. 31, 2006 meeting.
The latest interest rate increase may well be good for the financial markets in the short term. Since a 4% short-term rate was pretty much baked into stock and bond prices, the lack of any negative surprise could well lead investors to exhale in relief. With the season of rallies upon us, that sigh of relief could well be enough to spark a short-term rally.
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Actually I think we're talking very short term. Any investor who looks out not two months but six months, as I do in these short-term picks for my weekly appearance on CNBC, has to notice that the November interest-rate increase hasn't put an end to the rate hike drama -- and that the drama is likely to get even more dramatic as we move into 2006 and witness the end of the Greenspan era.
And the drama isn't just on the interest-rate side. The Fed has raised the possibility that higher energy prices may increasingly seep over into a higher core rate of inflation. The Fed also has noted that because of Hurricanes Katrina, Rita and Wilma, recent data on economic growth, personal incomes, and employment arent especially reliable right now. The Fed would never put it this way, but the folks who are running U.S. monetary policy (and effectively running economic policy, too, given the abdication of responsibility by the President and Congress) are driving blind.
Time for safe stocks
So I think it's time for anyone thinking six months out or longer to think about sheltering part of their equity portfolio in stocks that provide the maximum in inflation and growth protection. The stocks I'm looking for provide protection from inflation because these companies have demonstrated an ability to pass cost increases to their customers without seeing a drop-off in sales or market share. And they provide growth protection since these companies sell products that consumers will continue to buy even if growth in the economy as a whole slows down.
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