4 Stocks to Buy Before They Rise Further

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Dave Sekera (0:14)

Sorry, quick break for legal. To learn more, visit vanguard.com/audio. All investing is subject to risk. Investments in bonds are subject to interest rate, credit and inflation risk. Vanguard Marketing Corporation distributor.

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Dave Sekera (0:26)

Are you backed by institutional quality bond funds? Vanguard.

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Please stay tuned for important disclosure information at the conclusion of this episode.

Susan Dziubinski (0:53)

Hello, and welcome to The Morning Filter Podcast. I'm Susan Dziubinski with Morningstar.

Every Monday before market open, I sit down with Morningstar Chief US Market Strategist, Dave Sekera, to talk about what's been going on in the market, what investors should have on their radars for the week, some new Morningstar research and a few stock ideas. Now, before we get started, we have a programming note for our audience. In case you missed it, we dropped a bonus episode of the podcast last Thursday.

Dave took a deep dive into one of his recent stock picks, Broadcom, with Morningstar senior analyst, Will Kirwin. So if you missed it, you can find the bonus episode wherever you get your podcasts. And Dave, let me tell you, you and Will are turning into stars on YouTube. The feedback is tremendous on the episode. So congratulations.

Dave Sekera (1:41)

Well, that's not going to be me. I'm not that great of an interviewer, but yeah, no, Will had a lot of great commentary, a lot of good information in there. So yeah. And again, I think that's an interesting one, you know, to do that deep dive, because it is such a differentiated view from what the market's currently pricing in.

Susan Dziubinski (1:56)

Yeah. Anyway, check it out, audience, if you haven't. All right. So let's kick things off this week, talking a little bit about last week's market activity, starting with that spike that we're seeing in the 10-year treasury bond yield. Now, Dave, you've talked about that a lot on the podcast this year, just about that risk of rising interest rates. So do you think we're getting a little too close for comfort here as far as, you know, this having a sizable impact on stock investors?

Dave Sekera (2:22)

I think so. And in fact, the bond market last week reminded me of like one of the books I used to read, one of the favorite books I had for my kids when they were young. That book being Alexander in the Terrible, Horrible, No Good, Very Bad Day. And that's really how you described the bond market last week. And unfortunately, it looks like the bond market is getting hit again this morning, you know, before market open. So if you look at the curve, like the five year, you know, that increased by 15 basis points, that's now trading at 5%.

And the 10 year increased by 18 basis points up to 5.18% by the end of last week. In fact, there was one individual day last week that the 10 year gapped out by as much as 18 basis points in just one day. You know, having traded the treasury market for a lot of years in my prior history, I just note that's a very rare move. Rarely do you see the 10 year move that much in one individual day.

As I said, you know, this morning, they're getting hit even harder again. You know, the 10 year is now five basis points higher by trading at 5.24%.

So month to date, I think the 10 year is about 50 basis points wider than where it started the month. And in fact, year to date, it's now well over 100 basis points higher than where we were. So just to put that in a little bit of context, you know, the 10 year now is at the highest yield since it peaked in June 2007 And in fact, really the last time it traded above 5% for any meaningful period of time was, you know, pre 2000 Now to show my age here, I started in finance coming out of undergrad in 1991 And even I barely remember rates, you know, being as high as what we're seeing right now. In fact, I pulled the data down and the average yield since 1990 is 4.25%.

My first mortgage back in the early 1980s was 8.8%, which I think a lot of people would really have a hard time trying to swallow a mortgage, you know, at that kind of rate. So getting back to your original question, is it time to worry? So what I would say here is when I look at the market and look at our valuations, the market is undervalued overall, but I do think it is especially vulnerable today because typically you would expect stocks to struggle as interest rates are rising, especially those long duration growth stocks that are going to be much more sensitive to changes in interest rates. But yet if you look at the market performance, month to day, even year to day, it's held up much better than I would have thought. And in fact, last Friday, we had a pretty good rally going into the market close, which I really wouldn't have expected.