Investors had little place to hide in 2022, when stocks and bonds took on a combination unprecedented in modern history. According to Evercore ISI’s Julian Emanuel, 2022 is the only year on record in which the S&P 500 index and the US bond market both fell 10% or more. When charted against other years, it shows that 2022 has been a dominant year so far. In previous down years for stocks, bonds often rose as investors turned to safe-haven assets. However, this year’s downturn coincided with a series of rate hikes from the Federal Reserve, sending bond prices down. Market volatility is also unique. Emanuel said the recent drop in stocks that erased much of the summer rally is like an outlier from history. “Not only did the 50% retracement rally occur in August, but the 50% drop from the August peak to mid-way down (3,981) to the June low then occurred within days. A wave. Such a 50/50 drop has occurred only 4 other times since 1950 and confirms that the prevailing Bear Market is not over yet,” Emanuel wrote. With that in mind, Emanuel says investors should look for more defensive stocks in the form of companies with strong free cash flow for dividends or stock buybacks. “We see Value in ‘Rate of Return’ stories and reiterate our preference for stocks with strong FCF, high Total Shareholder Return, with above-average [earnings multiple] compression,” the note said. Source: Evercore ISI Research The names on the list include many companies with large margins, even if their near-term growth prospects are dim. The above also has better ratings from Evercore analysts. Facebook-mother, for example, Meta Platforms is spending billions of dollars on virtual reality development yet still reporting over $6 billion in net income in just one year. Q2 and also bought back more than $5 billion of stock.Also, there are a number of financial stocks on the list that offer good Dividend Yields to investors. Bank of America and Capital One Financial both have Underperforming the S&P 500 index this year but with a dividend yield of 2.7% and 2.4%, respectively.One stock on this list that has been a big winner this year is Energy Company. APA Corp. To date, the stock is up about 40% and APA reports free cash flow of more than $800 million for the second quarter. Additionally, Evercore recommends investors stay alert. through options on the S&P 500. – CNBC’s Michael Bloom contributed to this report.
