Investors may be tempted to grab stocks with high dividends after the Federal Reserve last week kept interest rates near zero percent.
Abby Joseph Cohen, president of Goldman Sachs’s Global Markets Institute, says there are better opportunities out there
“It’s not just about dividend growth,” Cohen told Bloomberg News. “You want to be investing in companies that generate cash and reinvest in in their own companies, and have a strong ROE. Companies that generate a lot of cash and have nothing to do but pay dividends — that’s usually not where the best opportunities are.”
The Dow Jones Industrial Average of blue-chip stocks fell 1 percent Friday, a day after the Fed said it was concerned about global economic growth. Markets last month fell more than 10 percent after China devalued its currency, leading investors to worry the world’s second-biggest economy was in trouble.
Higher interest rates would be worrisome to Cohen, but the Fed’s cautionary statements make a hike in borrowing costs less likely.
“Far more important is the outlook for economic growth and earnings growth,” Cohen said to Bloomberg. “What we’re looking at is companies with good exposure to the United States and are selective in terms of where they do business overseas.”
Meanwhile, fund managers are bracing for a recession as they pull money out of emerging markets like China and seek the safety of cash and bonds, according to Bank of America Merrill Lynch.
The bank’s monthly survey found that the percentage of investment professionals who were weighted toward stocks fell from 41 percent in August to 17 percent this month, the lowest in three years. Fund managers also had the worst expectations for global economic growth in five years.
That kind of widespread gloom may point to an economic slowdown — or conversely, be a contrarian set-up for stock-market gains, said Michael Hartnett, chief investment strategist at BofA.
“Unambiguous pessimism means risk assets riper for a rally,” he said in a Sept. 15 report obtained by Newsmax Finance
. “If no rally, then markets ominously hinting ‘recession’ and/or ‘default' imminent.”
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