The market — which, I am sure you have noticed — is correcting. This is what markets do after periods of expansion, asserts Kelley Wright, blue chip investment advisor and editor of Investment Quality Trends.

Despite what you may have heard or read, there is nothing extraordinary about this correction. What is extraordinary was the measures taken by the Fed and other central banks that created an environment where yield-hungry investors were encouraged to speculate to the point that valuations exceeded even those of the 1929 and 2000 periods, and those periods were some humdingers.

With the pendulum having swung too far to the excess, the markets are now repricing securities based on, wait for it, fundamentals, and profits. What a concept.

Clearly, the reality of rising interest rates and high inflation is impacting investor sentiment, not to mention that the Fed, for the time being anyway, is out of the “don’t worry, be happy” business. How long this lasts is anyone’s guess, given that the Fed is much more politically attuned than it was in the past. This is to say when the pain starts to impact the ballot box don’t be surprised if the Fed declares victory and reverses course.

Given that Fed Chair Powell was just confirmed for another term, however, maybe he goes full Paul Volcker and decides to put a stake in the heart of inflation before it gets really out of hand. For those of you that may not be familiar with Paul Volcker, he was nominated for Fed Chair by President Carter in 1979 and renominated by President Reagan in 1983.

The Volcker led Fed was widely credited with curbing the rate of inflation, which peaked at 14.8 percent in 1980. Of course, to accomplish this the Fed increased Fed Funds to 20%, and the Prime Rate, which is controlled by banks, rose to 21.50%. T-Bills, if I remember correctly, peaked somewhere around 18%, and the 30-year T-Bond topped out at about 14.50%.

Yes, there was a recession, but inflation did decline below 3% by 1983, and one of the greatest bull markets in history began in October of 1982. Whether Powell has what Volcker had, if that is called for, remains to be seen. If nothing else the coming months should provide for some interesting theater.

An old-fashioned bear market is one that drips on you like water torture until the masses throw up their hands in capitulation. When no one wants to buy another share of stock, ever, that is a true bottom.

Whether the correction continues with violent mood swings on an intra-day basis, or devolves into a bear market, there is no reason to panic for the enlightened investor. The dividend yield extremes of our Select Blue Chips have been established over significant periods of time. Accordingly, the repetitive areas of low-price/high-yield are opportunities to acquire shares of high-quality companies that represent good value.

High-quality and good value is the Holy Grail for the value investor. This is why we exercise patience until it hurts, to buy great companies only when they offer good value.

Is it fun to wait while we watch the major indexes climb ever higher? No, of course not. How do you feel though when your high-quality companies hang in there while you watch others scramble for the life jackets when their index funds and ETF’s are getting mauled? A lot better, yes? This is the payoff.

To be fair, some of our Select Blue Chips will take some incoming as their sectors are sold off, but they will recover first and the most as their extraordinarily high-yields are recognized by the market. Your job in this instance is to not panic, but if you have kept some dry powder to add to existing positions. Remember, this too shall pass, it always does, and when it does you will be glad you stayed the course.

A quick glance at the Undervalued category does reveal that there are a high percentage of interest rate sensitive stocks, meaning banks, brokers, and utilities. This suggests the market is concerned about the potential for recession. Recession, should one develop, is not a permanent condition, and historically is the time to purchase beaten down sectors, as long as their internal fundamentals are in place. This is to say to be selective.

Also, remember that diversification is your friend. Optimally we look to build portfolios of 25 to 30 stocks as evenly diversified across the major sectors as possible. Where there are not sufficient stocks to buy two to three positions in a sector be patient. As our founder Geraldine Weiss said many times, “Stocks are like streetcars, another one will come along soon.”

To this end there are some stocks in the Rising Trends that may drop back into the upper range of Undervalue. A few that I am keeping an eye on are Amgen (AMGN), Air Products & Chemicals (APD), Eastman Chemical (EMN), Rio Tinto (RIO), and Whirlpool (WHR). In the Declining Trends I am watching Toro Company (TTC) and UFP Industries (UFPI).

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