NEW YORK — U.S. stocks held near their record levels on Tuesday after a quiet day of trading.
The S&P 500 added 8.65 points, or 0.2%, to 5,078.18 and is just off its all-time high set last week. The Dow Jones Industrial Average dipped 96.82, or 0.2%, to 38,972.41, and the Nasdaq composite rose 59.05, or 0.4%, to 16,035.30.
Traders work on the floor June 2 at the New York Stock Exchange. Stocks held near their record levels after a quiet day of trading, bolstered by earning reports and the hope that a solid economy will help profits grow this year.
Macy’s climbed 3.4% after reporting better results for the latest quarter than feared. It also announced a sweeping reorganization as it tries to kickstart growth in revenue. It will close about 150 stores and focus on opening new Bloomingdale’s and Bluemercury locations.
That and other winners helped offset a 1.5% drop for Chevron, which warned that its pending takeover of Hess may be under threat.
Nvidia was another weight on the market, dipping 0.5% to take a bit of shine off its jaw-dropping run. Moves for Nvidia’s stock pack an extra weight on the S&P 500 because it’s the third-largest stock on Wall Street by market value. It and a handful of other Big Tech companies have been responsible for a huge, disproportionate amount of the S&P 500’s rally since its bottom in October 2022.
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To see how top-heavy the market has become, consider how the S&P 500 would be behaving if it gave each stock’s movement the same weight regardless of size. The S&P 500 is beating that equal-weighted index on a one-year rolling basis by a wide margin, “just a whisker shy of the Dot.com bubble record highs,” according to strategists at Barclays.
Along with tech stocks, cryptocurrency prices have also been running higher. Bitcoin rose above $57,000 before edging back below the threshold and is up by roughly a third so far this year already.
New exchange-traded funds that hold bitcoin have made investing in the cryptocurrency easier, while also driving business for Coinbase and others who safeguard those ETFs’ bitcoins. Coinbase rose 2.7% Tuesday to bring its gain for the year so far to 14.5%.
Earnings reporting season is winding down for the big companies in the S&P 500, and the hope is that a remarkably solid U.S. economy will help profits grow through this year.
A report showed orders for long-lasting manufactured goods were weaker last month than economists expected, but better than forecast after ignoring airplanes and other transportation items.
A separate report said that confidence among U.S. consumers unexpectedly slipped.
On the upside for investors, the report also showed expectations for inflation among U.S. consumers ticked down.
4 investments to avoid during a recession
4 investments to avoid during a recession
Increasing interest rates, high inflation and a regional banking crisis have many people convinced a recession is on the way.
The Federal Reserve raised the federal funds rate to its highest level since 2007 in May, marking the tenth consecutive rate hike since March 2022. U.S. inflation hit a 40-year high in 2022 amid soaring demand, an already-strained global supply chain and Russia’s invasion of Ukraine.
Additionally, the S&P 500 remains well off its Jan. 3, 2022 high, adding to the sentiment that a recession is likely.
In the event a recession does hit, Bankrate compiled a list of investments you may want to consider avoiding. If you have questions on your financial portfolio, consider speaking with a financial advisor.
What investments should you avoid during a recession?
Recessions can be tricky to predict, and even trickier to navigate. Investments you might traditionally think of as safe might in fact expose you to more risk depending on the economic environment.
High-yield bonds
Your first instinct might be to let go of all your stocks and move into bonds, but high-yield bonds can be particularly risky during a recession.
High-yield bonds, with credit ratings below investment grade, are riskier than government debt securities, and are highly susceptible to market downturns. The issuing companies are often smaller, indebted and of overall lower quality, and in times of market uncertainty can be more likely to run into trouble.
Stocks of highly-leveraged companies
Companies carrying high levels of debt on their balance sheets should be avoided during a recession. The price of a highly indebted company is more likely to fall during a recession. If a company struggles to pay back its debts due to decreased demand and an overall economic slowdown, its stock price can fall quickly and the company may even fall into bankruptcy.
Although indebted companies can tumble in a recession and present investment opportunities later on, a defensive investor should stay away while the company faces clear business challenges that must be overcome.
Consumer discretionary companies
Consumer discretionary stocks are popular during boom times, but their goods and services fall outside of everyday essentials like utilities and healthcare. Well-known consumer discretionary companies include Tesla and travel companies such as cruise lines or airlines.
This sector can be particularly susceptible to recessionary pressures, as the economy slows and people start spending less. Consumer discretionary companies move more dramatically with consumer sentiment and economic cycles, which can worsen in times of financial uncertainty.
Other speculative assets
Speculative assets are high-risk, high-reward investments such as penny stocks or stocks of companies with little to no earnings. Penny stocks are small companies whose stocks trade for very low prices. They’re not typically listed on major exchanges, and often do not provide financial information, giving investors little transparency and making them risky investments.
In recent years, many companies have used cheap debt to finance their operations, hoping to show revenue growth and worry about earnings later. But as the economy slows, revenue growth is harder to come by and with higher interest rates, investors want to see more in the way of earnings today. These companies can be hit by both a business downturn and a reduced valuation because of higher rates.
Many consider cryptocurrencies like Bitcoin to also be speculative. Cryptocurrencies don’t have intrinsic value because they don’t generate anything for their owners, such as dividends or earnings. Cryptocurrencies experience volatile price swings, and may see significant losses during a recession.
What investments should investors hold on to?
Recessions do not mean that you should pull out of all your investments. A decline in stocks can mean opportunities for investors to buy valuable long-term investments at discounted prices. Distinguishing between what you should let go of and what you should stay invested in is a crucial first step.
“Generally, investors should consider balancing capital preservation in portfolios in the short-term with staying invested for longer-term opportunities. In this environment, how you get exposure is of paramount importance. We would recommend investors focus on higher-quality investments and avoid more speculative areas of the market,” says Sid Vaidya, U.S. chief investment strategist at TD Wealth.
This means staying focused on companies with resilient balance sheets, high-quality fixed income like Treasuries and mortgage-backed securities and credit instruments like investment-grade bonds, Vaidya adds.
Treasuries and mortgage-backed securities are higher-quality securities that offer consistent income and stability.
Bottom line
It’s important to stay invested during a recession and not simply empty out your positions into cash – but the quality of your investments is crucial. Avoiding highly indebted companies, high-yield bonds and speculative investments will be important during a recession to ensure your portfolio is not exposed to unnecessary risk. Instead, it’s better to focus on high-quality government securities, investment-grade bonds and companies with sound balance sheets.
Georgina Tzanetos contributed to a previous version of this article
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.
This story was produced by Bankrate and reviewed and distributed by Stacker Media.
Treasury yields were mixed but held relatively steady following the reports. Yields have been climbing this year as traders push back forecasts for when the Federal Reserve may begin cutting interest rates.
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