Welcome to my latest video presentation. Amid this volatile bear stock market, I decided to seek insights from one of the shrewdest analysts on our team: Robert Rapier, chief investment strategist of Utility Forecaster, Rapier’s Income Accelerator, and Income Forecaster.

I invited Robert to be my guest, to see what he has to say about current conditions on Wall Street, and how to make money even in this bear market. Below are edited excerpts of our discussion. (For the full interview, with several charts, watch the video.)

After the Federal Reserve’s last meeting, when it hiked interest rates by 75 basis points, stocks sharply sold off. Do you think the major U.S. stock market indices have a chance of ending in positive territory by the end of this year?

Probably not. We were looking good coming into the second half of the year, with a rally that started in mid-June, but then Fed Chair Jerome Powell came out with negative comments about inflation and what the central bank would have to do with respect to interest rates, which caused the market to selloff.

We’re still firmly in a bear market. From Powell’s comments, it doesn’t seem that we’ll see the light at the end of the tunnel just yet.

The 0.75% hike was widely anticipated and immediately after it was announced, stocks were in the green. But when Powell started to speak, equities tanked. Do you sometimes get the impression that Powell talks down the markets, and we should get less chatter from Powell and the Fed?

Yes, for sure. You’re right, the 75-basis point hike was anticipated, but what wasn’t anticipated were the negative comments from Powell, and about all the “pain” we’ll have to endure.

Powell signaled that there are more hikes ahead, and I think that’s premature. Inflation has started to cool off a little bit. The Fed needs to wait and see what’s happening, before it can say additional interest rate hikes are teed-up.

There’s lots of bad economic news out there regarding inflation and interest rates, but there are also some good economic indicators. Overall, though, I expect the second half of the year to be challenging. As long as inflation is running at 8%, the stock market will face headwinds.

The hoped-for dovish pivot is dead for this year. Do you expect the Fed to ease up sometime next year?

I do, because I expect inflation to settle down. I always look to energy prices. They’re a major driver of inflation, and they’re falling. Gasoline prices have pulled back, and that’s definitely helped with inflation. We need to see where things stand six months from now. I expect these interest rate hikes to stop, or at least slow down, next year.

What are some of the worst dangers bedeviling investors?

Be careful and don’t necessarily think that if a stock has sold off a lot, it’s a bargain. It might have further to fall.

Because earnings in many sectors have contracted, some sectors that appear to be a value, based on where they were a year ago, aren’t necessarily a value. Inflation and interest rate hikes are still major risks going forward.

You know that old maxim, “Buy when there’s blood in the streets.” Well, I offer a corollary to that: there can always be more blood. You don’t know when the bleeding has stopped, until it’s in the rearview mirror.

There are opportunities in selloffs, whereby you can buy stocks on your wish list that are cheaper, but the old adage “don’t try to catch a falling knife” also comes to mind.

Exactly. A company’s stock may be down 50%, but it’s earnings may be down 75%, so shares aren’t necessarily a good buy.

Growth assets, particularly technology stocks, have taken the worst beating lately, whereas dividend payers have held their own.

What are the major criteria that you look for in a dividend stock?

I look to cash flow first and foremost. Companies can play all sorts of games with earnings, but cash flow will tell you whether a company’s dividend looks safe. A company that is growing cash flow over time will generally be able to sustain and grow its dividend.

Utility stocks are your forte. How have they performed so far in 2022 and what’s your outlook for this “safe haven” sector in early 2023 and beyond?

Utility stocks generally fare well in a recession, and we may be in a recession now. Some indicators suggest we are, but I don’t think we will know for a bit longer.

For most of this year, energy and utilities have been the only sectors in positive territory. Energy has been an outstanding performer, while utilities have managed to eke out a positive return. All other sectors have been in the red.

What are your favorite inflation hedges and why?

My favorite inflation hedge is energy, for a basic reason: For the past several economic cycles, energy has been the driver of inflation. We see high energy prices leading to high inflation, but that also leads to high profits for energy companies.

Politicians complain that energy company profits are driving inflation, but it’s actually the opposite. High inflation is driving energy company profits. These companies didn’t just wake up one day and decide to raise oil prices. Oil prices went up, inflation went up, profits went up. They have little control over this, but they do benefit from it.

Editor’s Note: Investing Daily just launched an exciting new premium publication, Income Forecaster, helmed by Robert Rapier, that’s designed to help you generate a steady stream of income, but also with a growth component.

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John Persinos is editorial director of Investing Daily.

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