Short-term interest rates remain high at 4.7%, while long-term rates are under 4%. Yet the market has been remarkably resilient. We continue to recommend a conservative and well-diversified portfolio of solid stocks and funds, one of which is Main Street Capital (MAIN), outlines Mark Skousen, editor of Forecasts & Strategies.
Our portfolio has gained strength even as Wall Street worries about the Federal Reserve raising interest rates further in the face of continued inflationary pressure and a rebounding economy. In fact, the economy is still going strong, sidestepping a recession and a rise in unemployment – even though historically, a negative yield curve is bearish for the economy and the stock market.
Cyclical traders say that, “As January goes, so goes the year” (“Maxims of Wall Street,” p. 116). It is known as the “January Barometer.” According to these technicians, a bullish January means solid profits in small-cap stocks and the market in general for the rest of the year.
Will this new bull market on Wall Street continue? Much of that depends on how severe Jay Powell and the Federal Reserve’s rhetoric will be in the future. Once again, the Fed raised short-term interest rates on Feb. 1, but this time it was by a tepid 25 basis points and had little effect. Moreover, the stock market has moved up after the midterm elections every year since 1942. It may well happen again.
One way to profit from rising interest rates is by investing in MAIN, the business development company based in Houston, Texas. It invests in 195 companies around the country through debt and equity financing. With 76% of MAIN’s debt investments earning interest at floating rates, its investment income goes up every time the Fed raises interest rates.
Moreover, MAIN continues paying most of its earnings in monthly and special dividends, with an annualized yield of around 7%. By doing so, it pays no corporate taxes.
Recommended Action: Buy MAIN.