Should You Buy Bonds or Sell Them Ahead of a Potential Rate Hike?
NEW YORK (TheStreet) — April’s non-farm payrolls report was in-line with expectations, causing the S&P 500 to rally 1.3% on Friday and boosting bonds higher as well.
Although bonds rose higher on the day, they nonetheless closed near session lows, said Brian Kelly, founder of Brian Kelly Capital, on CNBC’s “Fast Money” TV show. He also pointed out that utilities closed near session lows too, a sign that investors are anticipating higher interest rates at some point this year.
Read More:11 Safe High-Yield Dividend Stocks for Times of Volatility and Uncertainty
While bonds did close near the lows, Guy Adami, managing director of stockmonster.com, says investors should stick with the iShares 20+ Year Treasury Bond ETF (TLT) and the Utilities Select Sector SPDR ETF (XLU) and use a stop-loss of $ 43.50 on the latter. He believes rates are headed lower, which will benefit these two assets.
“People are extremely complacent,” said David Seaburg, managing director and head of sales trading at Cowen & Co. At this point, investors aren’t betting on a massive upside, but aren’t buying portfolio protection either. They’re just unsure of whether to buy or sell. Which is exactly why investors shouldn’t “do anything,” according to Tim Seymour, managing partner of Triogem Asset Management. Instead of trying to figure out their next move, they should simply stay the course. Stocks have been rocky but continue to knock up against all-time highs. Investors wanted to see the labor report before deciding whether to stick with stocks or sell them. As far as European stocks go, Seymour made the case that a weakening euro will continue to act as a benefit to European companies when they report earnings for next quarter. He likes the iShares MSCI Spain Capped ETF (EWP). Visa (V – Get Report) shot higher by 4.4% on Friday on news that it’s in early talks to acquire Visa Europe. That would be a good move, since the company’s international growth is outpacing its domestic growth, Seymour said. Visa and MasterCard (MA) both have attractive business models because they don’t take on a lot of risk, Adami said. Instead, they are simply transaction companies. He believes both stocks are headed higher. Earnings continue to be in the spotlight and the traders were taking their positions ahead of next week. Shake Shack (SHAK) reports on Wednesday and Seaburg, who owns the stock, says he plans to sell after the company reports. Kelly called Shake Shack an “absolute no touch” because there’s too much competition. Switching gears, Adami made the case that McDonald’s (MCD) could be hitting its peak for the year, as the stock tends to top out around this time of year. He said he likes Jack In The Box (JACK).
Be “very careful” with Jack In The Box, Seymour said. He noted its growth is attractive, but its valuation is not.
Cisco Systems (CSCO) also reports earnings on Wednesday. The company’s services business is “doing very well” and the company has attractive growth at a reasonable price, Seymour said. However, after its recent rally, Seymour is cautious on the stock as it heads into its earnings results. Adami believes shares of Cisco could eventually climb to $ 33 after it reports earnings. He says to stay long on the stock, as CEO John Chambers, who recently announced his retirement, will want to go out on a strong note. Seaburg and Kelly agreed. For their final trades, Seaburg is buying Limited Brands (LB) and Seymour is a buyer of Pandora (P). Kelly said to buy the Financial Select Sector SPDR ETF (XLF) and Adami is buying Juno Therapeutics (JUNO). Read More: Warren Buffett’s Top 10 Dividend Stocks
Yahoo! Finance: Credit Services Industry News