The biggest bear on Wall Street: BofA’s Subramanian just slashed her S&P price target to 3,600. But here’s what she likes for healthy cash return and inflation protection

Energy

Fueled by rising commodity prices, energy was the S&P 500’s best-performing sector in 2021, returning a total of 53% vs the index’s 27% return. And that momentum has carried into 2022.

Year to date, the Energy Select Sector SPDR Fund (XLE) is up a solid 23%, in stark contrast to the broad market’s double-digit decline.

XLE aims to track the performance of the S&P 500’s energy sector. If the positive momentum in energy prices continues, the ETF is a good bet to keep delivering market-topping returns.

XLE also provides a good starting point for further research if you are looking for individual picks. Its top holdings include oil giants like Exxon Mobil (XOM), Chevron (CVX), and ConocoPhillips (COP).

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Financials

To tame spiking inflation, the Fed is tightening aggressively. Last month, it raised its benchmark interest rates by 75 basis points, marking the largest rate hike since 1994.

Many businesses fear rising interest rates. But for certain financials, like banks, higher rates are a good thing.

Banks lend money out at higher rates than they borrow at, pocketing the difference. As interest rates increase, this earnings spread widens.

Banking giants are also well-capitalized right now and have been busy returning money to shareholders.

Last year, Bank of America boosted its quarterly payout by 17% to 21 cents per share. Morgan Stanley doubled its quarterly dividend to $0.70 per share – which was followed by another increase recently to $0.775 per share. And JPMorgan increased its quarterly rate by 11% to $1 per share.

Investors can also get exposure to financial stocks through ETFs like the Financial Select Sector SPDR Fund (XLF) and the Vanguard Financials ETF (VFH).

Healthcare

Healthcare serves as a classic example of a defensive sector thanks to its lack of correlation with the ups and downs of the economy.

At the same time, the sector offers plenty of long-term growth potential due to favorable demographic tailwinds — particularly an aging population — and plenty of innovation.

Average investors might find it difficult to pick out specific healthcare stocks. But healthcare ETFs can provide both a diversified and profitable way to gain exposure to the space.

Vanguard Health Care ETF (VHT) gives investors broad exposure to the healthcare sector.

To tap into specific segments within healthcare, investors can look into names like iShares Biotechnology ETF (IBB) and iShares U.S. Medical Devices ETF (IHI).

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Consumer Staples

Consumer staples are essential products such as food and drinks, household goods, and hygiene products.

We need these things regardless of how the economy is doing.

When inflation drives up input costs, consumer staple companies — particularly those with scale and distribution advantages — are able to pass those higher costs onto consumers.

Even if a recession hits the U.S. economy, we’ll probably still see Quaker Oats and Tropicana orange juice — made by PepsiCo (PEP) — on families’ breakfast tables. Meanwhile, Tide and Bounty — well-known brands from Procter & Gamble (PG) — will likely remain on shopping lists across the nation.

You can gain access to the group through ETFs like the Consumer Staples Select Sector SPDR Fund (XLP) and the Vanguard Consumer Staples ETF (VDC).