Why Value Stocks Are Vogue in 2022

Tech, retail and housing stocks have all taken a big hit in 2022.

Value stocks may offer investors a safe haven from bigger losses.

I am not a financial advisor and ideas and content presented here are of my own opinion.

So the Fed just raised the Fed Funds Rate another 1% to combat CPI above 9%. And with a Recession now official with two consecutive quarters of negative GDP growth, the stock market and housing market for that matter (read this members only article here), are now viewed by many investment experts and financial advisors as risky to hold for the next several months to years without potential of losing up to 20-50% of their value.

So what are Value Stocks and might why they might be considered a safe haven investment? Value stocks are publicly traded companies that produce products or services that people or businesses need if the economy is good or bad.

What are value stocks? They are often consumer staples like Coca Cola or AT&T. Feel free to google "10 best value stocks to buy right now" and I'm sure you'll get some great ideas. The key is to try to buy low right now or soon and look for companies with low debt and high dividends. Start by identifying target Value Stocks. Look at the stocks rise in value over the past 12-months. Invest in ones that pay high dividend. Be sure to know the "Ex-Dividend Date before you buy or sell stocks to capture dividend or to not buy at the wrong timing and miss the dividends that are most commonly paid out on a quarterly basis. The Ex-Dividend Date and details about dividends to be paid out for any given stock an be found on any site you are using to trade stocks. You might also look to see how stocks performed in the Great Recession to provide a possible roadmap we might see repeated. Align this with the Fed lowering Fed Funds Rate too and when the stock market switched back to tech and retail stocks as the economy began to recover. I may write a follow up post to this one to provide this data and even make a few picks of my own.

Value stocks can perform best in a down economy and see rise 10-20% in year starting just prior to recession and once a recession becomes official. Plus many of these stocks pay a dividend to investors. So earning a 7-10% ROI on these stocks in 2022-23 is something very possible. Of course when the economy rebounds, investments in Value Stocks may swing back to retail, restaurants, tech and housing stocks as the best opportunity for highest ROI. Like Financial and Investment Advisors often say, it is best to be diversified in your investments. Yet they may also say to is also smart to invest in alignment with current economic conditions. Right now and for the foreseeable future it is my opinion that the economy is heading south fast and will not see a bottom in the near future. We may indeed have to see some pain to cut high inflation we have not seen the likes of since the 70's and early 80's. Not only are we likely to see millions of jobs lost in the coming months and years, we are likely to see many businesses shut doors for good.

So, I believe as do Macro Economists that the main source of rising inflation was loose QE policy as combined with massive stimulus by our Federal Gov in 2020-21. This produced an artificial injection of money supply that fueled increase in consumer spend and the housing markets.

Inflation was also caused by shortages of goods and services in 2020-21. Inflation was also driven higher by the cost of crude oil rising from near $40/barrel in 2019 to early 2020 all the way up to above $120 per barrel this Spring. America saw gasoline and diesel fuel prices more than double from early 2020 to Spring/Summer of 2022. The cost to transport goods to food to retail stores, restaurants, directly to homes and offices by Amazon and online orders rose with the increases of fuel costs. Retailers, restaurants and grocery stores were all forced to raise prices to remain profitable. And with many retail and restaurants in short supply of workers in 2021 as they opened back up had to pay more to employees. The cost was also passed along to consumers as well.

Now however with the Fed raising the Fed Funds Rate another 1% on July 28 an more rate hikes to come, consumer spend will slow as the cost of credit card interest rises and people stop spending so much money on credit cards or that was funded by government stimulus and long-term unemployment checks. Most Americans are now seeking to cut their budget and downsize their discretionary spend. After all they did plenty of that in 2021-22 to date. So the Value Stocks may be in Vogue for the next year or two or even three as the economy bottoms out and begins to recover. They may keep you on pace to combat inflation of 6-12% in the next 12-months. Keep you eye on the Fed. If they signal they are going to begin lowering the Fed Fund Rate again then it may be time to sell part of your holdings in Value Stocks and reinvestment them back in retail, tech, restaurant and housing stocks. Yet this may be 18-36 months away as the Fed has often said it likes to see the CPI near 2%. We've got a ways to go. I'll be writing more on my economic forecast for the next 18-36 months in other posts for members only. Now, wait there is still more to consider. There's still ample geopolitical turmoil coming this Fall. With the Mid-Term elections we could see the return of another virus variant right before the election in October. We could see also more rioting and burning cities like in the Summer of 2020 when lawlessness reigned in many cities across America. And let's not forget the war in Ukraine and that relations between Russia and China and the US are akin to Cold War times of the 1950's to 1980's. And now the dollar is also in process of being decoupled from being the Petro-Dollar and Global Reserve Currency. The economic picture has several dark clouds on the horizon and some may deliver blows to the economy. For this very reason Value Stocks may be a smart investment for a portion of your portfolio. I'd also say to make room in energy and food stocks as well as the cost for both may continue to rise in 2022-23, most especially of war cuts supply to fuel and food.

And lastly I must point out that there is a false belief that stock markets always bounce back up after market crashes and rise above former market highs in time. In the 1980's Japan's Nikkei 225 Index rose to nearly 39,00 points in December of 1989. In 1990 the Nikkei crashed by about 47% and today it stands below 17,000 points. In 2003 and in March 2009 the Nikkei dropped all the way down to below 7,000 points. You may not be old enough to remember this but Japan thrived in the 1980's. They had the most thriving economy and growing stock market in the world. And then it all came to a crash. And their real estate market crashed too. You could say they had what the US stock and real estate markets experienced in the 2000's and then the market crashes began in 2007 and were not done until 2011. See the chart below displaying all such.

While our stock and real estate markets recovered after the Great Financial Crisis from 2007-11 and even grew more than 4X higher than lows in March of 2009, a stock market crash may not prove to be more permanent and not ever fully recover even in decades to come.

Also keep an eye out for the Fed Gov pumping our more stimulus money as the recession grows or there is a repeat of 2020 lockdowns. This could counteract the Fed raising Fed Funds Rate as well and even make inflation to rise again or remain at 5-7%, thus extending the time of higher Fed Funds Rate and more raises to come. All such hits the housing market the hardest as homes become less affordable. I'll be writing a post soon with my forecast on the housing market and when it may bottom and when might be an ideal time to buy when home prices may have dropped 20-40% in next 18-36 months.