It’s no secret to those who know me that I love movies. When done properly, cinema isn’t just entertainment; it’s art. A familiar movie trope: public opinion as expressed by a torrent of letters. A classic example is when Jimmy Stewart, playing a U.S. Senator, gets inundated with constituent mail in Mr. Smith Goes to Washington (1939).

I regularly get letters (although not in torrents). My readers are resourceful and find several ways to track me down. The best method to reach me is through our official email address: mailbag@investingdaily.com.

I don’t claim to be an “everyman” like Stewart, but when you pose questions, I try to provide answers of universal applicability. Let’s dive into the (figurative) mailbag and see what’s on your minds. I edit letters for concision and clarity, but I do so with a light touch.

Electrifying gains…

“I’m an income investor whose portfolio is heavily weighted toward utilities stocks. What’s your prognosis for utilities in the second half of 2024 and why?” — Jeremy B.

You can expect H2 to be relatively stable for utilities stocks, with modest growth. The broader market is experiencing volatility due to geopolitical tensions, a divisive U.S. presidential election, and fluctuating economic indicators. Under these conditions, utilities provide a safe haven. What’s more, many utilities have been investing in renewable energy, which offers new growth opportunities.

Utilities were laggards in 2023 but they’re positioned to outperform this year as the Federal Reserve gets ready to cut interest rates. Lower interest rates generally benefit utilities because their capital-intensive projects become cheaper to finance, and their high dividend yields become more attractive compared to other income-generating assets.

Rotation into cyclicals…

“Which sectors look the most appealing to you right now? Should I rotate into cyclicals?” — Jim M.

As inflation continues to fall and monetary policy gets looser, sectors that typically perform well in a low interest rate environment should become more attractive. Technology, real estate, and consumer discretionary sectors often benefit the most from lower rates.

These sectors tend to have higher growth potential and can capitalize on cheaper borrowing costs to finance expansion and innovation. Tech companies, in particular, may see increased investor interest as their valuations become more justifiable with lower discount rates.

Rotating into cyclical sectors, which are sensitive to economic growth, also would be a shrewd strategic move. Sectors such as industrials, materials, and financials often outperform during periods of economic expansion.

The dangers of political investing…

“If he wins in November, Donald Trump has promised to cut taxes and impose tariffs against foreign competitors such as the Chinese. How should I prepare my portfolio for a Republican administration?” — Carl L.

I don’t advise making investment choices based on the vagaries of politics. You should always emphasize underlying technical and fundamental indicators. Making bets on expected government policies often gives investors nasty surprises.

That said, if Trump regains the presidency in November and implements his promised tax cuts, it might stimulate the economy, although history has shown that there’s little correlation between lower taxes and economic growth (despite the popular myth to the contrary). Tax cuts could also reignite inflation.

In addition, imposing tariffs on foreign competitors, especially Chinese companies, could lead to increased costs for industries reliant on global supply chains, such as manufacturing and technology.

To mitigate potential risks, consider diversifying into sectors less impacted by international trade tensions, such as utilities and domestic-focused real estate. These sectors would offer more stability if trade conflicts escalate.

It’s always wise to maintain a global perspective. While a Republican victory might emphasize U.S.-centric policies, investing in international markets can provide diversification and reduce exposure to domestic policy shifts.

Hedging against a potential selloff…

“Aren’t valuations generally too high? I’m worried about a big selloff, especially in the tech sector. What are some good ways to hedge my portfolio?” — William C.

With stocks reaching new highs in July, concerns about stretched valuations, particularly in the tech sector, are valid. To hedge against a potential selloff, consider increasing exposure to sectors traditionally seen as safe havens, such as utilities, consumer staples, and health care.

These sectors tend to be less volatile and offer stable returns even during market downturns. In addition, investing in dividend-paying stocks can provide a steady income stream and cushion against market declines.

Another effective hedging strategy is to allocate a portion of your portfolio to bonds or bond funds. Bonds typically move inversely to stocks and can provide a buffer in times of equity market stress.

Consider incorporating alternative investments, such as cryptocurrency and precious metals, which often serve as a hedge against market volatility and inflation. Exchange-traded funds (ETFs) focused on these assets can provide exposure without the complexities of physical ownership.

Investing in the “green rush”…

“Pot stocks seem to be making a comeback this year, but I’m wary. Does the cannabis rebound have lasting power?” — Nancy K.

The cannabis sector experienced a prolonged slump in 2023 but it’s beating the broader market this year. Several factors contribute to this resurgence, including increasing legalization efforts at the state level and growing acceptance of cannabis for medical and recreational use.

Companies in this sector are also becoming more sophisticated, focusing on improving product quality, expanding distribution networks, and achieving profitability.

While the cannabis rebound shows promise, it’s crucial to approach it with a long-term perspective. The industry is still in its early stages, and volatility is likely to persist.

Diversifying your investments within the sector, including exposure to ancillary businesses such as cannabis-related technology, real estate, and consumer products, can lessen risks.

Staying informed about regulatory developments and market trends also is essential to making profits in this fast-changing sector. That’s where my premium trading service, Marijuana Profit Alert, comes in.

I’m the editorial director of Investing Daily. I’m also the chief investment strategist of Marijuana Profit Alert.

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