Fed Meeting Could Trigger Stock Sector Rotation

U.S. equity investors could rotate out of high-yielding sectors and into stocks of banks, which would benefit from the next leg up in interest rates, after the Federal Reserve’s policy-setting meeting wraps up on Wednesday.

If the Fed next week gives a nod to rising inflation or focuses its trimmed-down bond buying on longer-dated bonds as it winds down its balance sheet, there could be a shift around of preferred sectors, investors said.

“In the short run financials will benefit,” said Chad Morganlander, portfolio manager at Washington Crossing Advisors, if the Fed action pushes long-term rates higher relative to short-term rates.

Next week’s meeting is not expected to result in an interest rate increase, but investors will focus on how Fed Chair Janet Yellen characterizes recent inflation readings, for clues to the likelihood of a hike in December, as well as on how the U.S. central bank will begin to

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