Cathie Wood warned of another ‘Great Depression’ if the Fed doesn’t pivot — here are 3 investment sectors for safe haven

In an effort keep inflation under control, the U.S. Federal Reserve increased interest rates aggressively. All indications point to additional increases in 2017.

According to Ark Invest’s Cathie Wood, this could have serious consequences. Wood used a series of tweets to compare the current situation to those that preceded the Great Depression.

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“The Fed raised rates in 1929 to squelch financial speculation and then, in 1930, Congress passed Smoot-Hawley, putting 50%+ tariffs on more than 20,000 goods and pushing the global economy into the Great Depression,” Wood said. “If the Fed does not pivot, the set-up will be more like 1929.”

The super investor argued that the U.S. central bank is “ignoring deflationary signals.” At the same time, she warned that the Chips Act — designed to support semiconductor manufacturing in the U.S. but restrict it elsewhere — “could harm trade perhaps more than we understand.”

As expected, the Fed increased interest rates by 50 more basis points in December.

All assets are not created equal. Some — like the three listed below — might be able to perform well even if the Fed doesn’t soften its hawkish stance this year.

Banks

Businesses fear rising interest rates. Higher interest rates are good for banks and certain financials.

Banks lend money at higher interest rates than they borrow and pocket the difference. As interest rates rise, so does the spread of how much a bank can earn.

The banking giants are also well capitalized and have been returning money for shareholders.

Bank of America increased its quarterly dividend by 5%, to 22 cents per shares in July. In June, Morgan Stanley announced an 11% increase to its quarterly payout to $0.775 per share — and that’s after it doubled its quarterly dividend to $0.70 per share last year.

Investors can also get exposure to the group through ETFs like the SPDR S&P Bank ETF (KBE) and the Invesco KBW Bank ETF (KBWB).

Essentials

Wood may be correct and the Fed cooling an economy already quite chilly could mean we are heading for a major economic recession.

These are the times when even mundane sectors such as consumer staples can prove their worth. No matter how difficult things get, no one is going to cut food or toilet paper from their monthly budget.

Even if the Fed does not manage inflation, household names who make essential products are able to easily pass on increased costs to their customers. Whatever happens, families will probably keep eating Life cereal from PepsiCo (PEP) and cleaning their clothes with Downy from Procter & Gamble (PG).

Continue reading: 4 simple ways to protect your money against white-hot inflation (without being a stock market genius)

You can invest in ETFs like Vanguard Consumer Staples ETF, (VDC), or the Consumer Staples Select Sector SPDR Fund, (XLP).

Commercial and residential real estate

Normally, rising interest rates and skyrocketing mortgage payments would be bad news for the real-estate market. The history suggests otherwise.

“Between 1978 and 2021 there were 10 distinct years where the federal funds rate increased,” says investment management company Invesco.

“Within these 10 identified years, U.S. private real estate outperformed equities and bonds seven times and U.S. public real estate outperformed six times.”

Remember that real estate is an investment. common inflation hedge. It is more expensive to build homes or office buildings when raw material and labor become more costly.

It makes existing properties more appealing and more expensive.

This is not just for the super-rich.

Real estate moguls still find effective ways to invest millions despite high inflation and uncertain economic conditions, as Wood warns.

Prime commercial real estate, for example, has outperformed the S&P 500 over a 25-year period.

You don’t need to be a landlord if you don’t have enough time or patience. Real estate investing is easy through real estate investment trusts (REITs) Use the help of new platforms.

Retail investors now have these kinds of opportunities. This is not just for the very wealthy. With a single investment, investors can own institutional-quality properties leased by brands like CVS, Kroger and Walmart — and collect stable grocery store-anchored income on a quarterly basis.

This article is for informational purposes only. It should not be considered as advice. It is not a warranty.