April 27: The Fed has achieved about one-half of its inflation fighting goal as the inflation rate has dropped from over 8% to around 5% today. Another 3% drop and it hits it’s 2% inflation rate target. Of course, the first 3% inflation decrease will be the easiest. The pandemic supply-side constraints have abated to the extent they are no longer of significance. Having let bonds that mature simply role off of its balance sheet, thereby slowly bringing the M2 money supply growth back to it’s long term rate is allowing the Fed to forecast a mild recession, if any. Assuming the status quo, this looks to be possible.

Sector sell-offs and volatility will continue and present excellent opportunities to buy stocks and funds that have been hammered. The volatility is mainly due to declining business earnings and weaker outlooks for future earnings that cause PE ratios to become too high as well as declining consumer expenditures and a slightly weaker job market. At the present time, the most hammered areas are consumer discretionary, banks, and tech stocks, including semi-conductors. Fund areas such as REITs, tax exempt muni’s that are leveraged, tech funds, financial funds, and funds with long-term fixed interest rates will now be among the best areas in which to cherry-pick. This is because these areas suffered the most under the Fed’s rising interest rate policy. Avoid defensive areas such as utilities and consumer defensives because when most investors are afraid of risky-equities they will flock to the defensive areas and bid up prices, leaving no room for additional capital gains.

The one exception that I could find in the utilities sector is an the under valued fund MEGI. This is also a really good fund you should consider buying.

For a tax-sheltered regular IRA that allows you to buy funds and avoid paying taxes on capital gains –unless you take them out, I would look at RQI, IGR, BSTZ, BIGZ, BMEZ, and WDI for example. For a non-tax sheltered investment portfolio that will require you to report any and all capital gains regardless of whether you take them out I’d consider EXG and ETB, and possibly ETJ in the Eaton Vance group as well as others funds such as FTC and PTA. Just remember to avoid making very many trades resulting in capital gains in your non-tax sheltered investment portfolios. Adding to tax exempt muni’s could include funds such as IQI, IIM, PML, PMX, MAV, and OIA. These are the types of funds and accounts that I have. Living on the dividends is kind of like having your own money tree. Moreover, CEF fund rotation among similar funds limits the downside in portfolio values, increases shares and yields among funds, and causes the “money tree” to continuously grow.

For those interested in growth stocks, consider: ASC, DFIN, HROW, SE, OSUR, ASUR, and ACLX. For dividends and growth: ASC, CVI, DAC, SVC, EPD, RUTH, TPVG, IIPR, CRARY, and GSBD. Over the preceding three months, the top three ETFs were: IGV, SLY, and VCR. I’d expect these three ETFs to continue performing well into the near future. Good Investing!