BlackRock: Beware Dividend-Paying Utilities Stocks

Russ Koesterich, BlackRock‘s chief investment strategist, today looks at last week’s acute episode of Fed-obsessing: "For several years now, ultra-low interest rates and expanding central bank balance sheets have been nudging investors toward higher-risk assets such as stocks and high yield bonds. In this type of environment, any potential change in central bank conditions could have the potential to create a different investment environment."

"While we expect the Federal Reserve’s shift away from its current stance to be slow and gradual, investors will need to become acclimated to the reality that policy can also tighten. We are hardly suggesting that investors should abandon stocks, but we would argue that investors should prepare themselves for more bumps along the way. Additionally, we would suggest that investors be cautious about those areas of the financial markets where valuations have become more distorted by unusual monetary conditions. For US stocks, this would include small caps and even some dividend-payers, especially ones like the utilities sector."

Source: Baron's

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