The Federal Reserve is sending signals about monetary tightening that are increasingly aggressive. But as the Fed’s hawks take flight, don’t scurry for cover. As I explain below, there’s still strong bullish sentiment on Wall Street. I also steer you toward an asset class that makes sense now.

That said, U.S. stocks on Tuesday fell across the board as investors nervously awaited the release of minutes from the latest meeting of the Fed’s policy-making arm, the Federal Open Market Committee (FOMC). The main U.S. equity indices declined as follows: the Dow Jones Industrial Average -0.80%; the S&P 500 -1.26%; the NASDAQ -2.26%; and the Russell 2000 -2.36%.

In pre-market futures trading Wednesday, stocks were extending their losses. The FOMC discussion from its most recent meeting is scheduled for release this afternoon.

Fed Governor Lael Brainard made remarks Tuesday that were interpreted as hawkish, as she indicated that the central bank needs to taper its balance sheet “rapidly.” She also suggested that rate hikes could come at a higher pace than the usual increments of 0.25 percentage point. Investors are nervously eyeing inverted yield curves.

Read This Story: The Wall of Worry to Climb in Q2

And yet, despite hotter inflation, a tightening Fed, the Russia-Ukraine crisis, and a resurgence of COVID in China, analysts have issued more Buy ratings on stocks in the S&P 500 as a percentage of their total ratings in more than 10 years.

On March 31, there were 10,821 ratings on stocks in the S&P 500. Among these ratings, 57.3% were Buy, 37.1% were Hold, and 5.6% were Sell. Over the past five years, the average month-end percentage of Buy ratings is 52.9%, the average month-end percentage of Hold ratings is 41.1%, and the average month-end percentage of Sell ratings is 6.0%.

Prior to the recent surge in Buy ratings, the last time the percentage of Buy ratings exceeded 55% at the end of a month was September 2011 (55.8%). See the following chart, published on April 5 by the research firm FactSet:

The power of dividend payers…

Readers of my Mind Over Markets column know that I’m a fan of the utilities sector. However, as the market begins to anticipate more aggressive Fed tightening, I expect utilities to come under selling pressure. The good news is that the resulting corrections will give long-term income investors an opportunity to pick up high-quality utilities at more reasonable prices, while also locking in higher yields.

Beyond that, it’s important to remember that even as fixed-income securities become more competitive with dividend stocks such as utilities, equities accomplish two goals that bonds cannot: grow earnings and increase payouts. And these attributes should continue to support share-price appreciation, albeit at a slower pace than previously.

In fact, contrary to the conventional wisdom, a rising-rate environment hardly spells doom for dividend stocks. Ned Davis Research conducted a landmark 40-year study that looked at the performance of stocks during the three-year period following the inception of each Fed rate-hiking cycle.

The study found that dividend payers outperformed non-dividend payers, while dividend growers did even better. The key to this outperformance was the reinvestment of dividends, which goes a long way toward compounding wealth.

Nevertheless, as rates head higher, it’s important for income investors to become more selective. When it comes to utility stocks, investors should focus on companies with manageable debt that are poised to deliver above-average earnings and dividend growth.

Regulated, U.S.-based utilities stocks are good proxies for dividend growth. Utilities provide essential services, a virtue that tends to make their stocks recession-resistant. They’re also insulated from overseas shocks, such as the worsening conflict in Eastern Europe. For our “dividend map” of the best utilities stocks to buy, click here now.

John Persinos is the editorial director of Investing Daily. Among the publications that he oversees is the premium trading service, Utility Forecaster.

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