Three months after the Fed begins raising interest rates the stock market has historically been 5.4 percent lower, observes Stock Trader's Almanac Investor newsletter (184 Central Ave., P.O. Box 2069, Old Tappan, NJ 07675). "If you eliminate the bubble of 2000, six months out is worse yet, with an average loss of 9.7 percent. After that, the markets either level out and rise if the economy is good (1978 and 1994), or falter if the economy is bad (1973 and 2000)."
Fidelity Capital Appreciation Fund has a more go-anywhere-for-growth attitude than most Fidelity funds. It's willing to pay up for higher earnings and to make big bets on individual stocks. And it's not shy about adding foreign issues, small- and medium-caps, and even down-and-out companies to the mix. It's appreciated an average 10.6 percent annually over the past 15 years and recently numbered these stocks among its major positions: Genentech, Liberty Media, Motorola, Seagate Technology, Time Warner, Yahoo Japan.
Utilities buy about 90 percent of all domestic coal and use it to generate more than 50 percent of the nation's power. Demand for coal will grow along with electricity consumption, predicts Smart Money magazine (1755 Broadway, New York, NY 10019). "It will grow even faster if coal takes market share from other fuels like natural gas. Gas reserves have dwindled and coal is at least 25 percent cheaper." Smart Money's favorite coal stocks: Arch Coal, Consolidated Energy, Massey Energy, Peabody Energy.
Because the stock market may be prone to bouts of volatility in the coming months, Standard & Poor's suggests focusing on stocks with records of solid past performance and a positive outlook. It recently recommended six such companies with S&P Quality Rankings of A or A-plus — meaning they have demonstrated superior 10-year earnings and dividend growth. Each is also ranked four stars (accumulate) or five stars (buy) for expected superior performance over the next 12 months. The sextet: Avon Products, Liz Claiborne, Nike, SouthTrust, Sysco, Target.
The Fed funds rate has rarely been lower than the inflation rate, as it is now. "So it's reasonable to expect rates to climb to 3 percent over the next year and to 4.5 percent 18 months from now," says FPA New Income Fund's Tom Atteberry. "As a result, a 10-year Treasury, which recently yielded about 4.25 percent, could yield 6 percent in a year or so."
If rates do rise significantly, there will be winners and losers in the stock market. Historically, when the yield on the 30-year Treasury bond rises 10 percent, these stock sectors benefited most in the subsequent year, according to Ned Davis Research: technology hardware and equipment (plus 20.4 percent), software and services (plus 15 percent), energy (plus 14 percent), broadcast media (plus 9.5 percent). These sectors fared worst: utilities (minus 13.3 percent), banking (minus 2.8 percent), insurance (minus 2.4 percent), diversified financials (minus 1.8 percent).
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Investor's Notebook is a digest of investment opinion from the world's leading financial advisers. It does not recommend any specific investments, and no endorsement is implied or should be inferred. For more information, contact the individual firms cited.