Donald Trump’s first week in the White House triggered a rally in stocks after a rough start to the year. However, concerns about the economy, particularly high inflation and uncertainty surrounding the Federal Reserve’s plans for future rate cuts, continued to weigh on investor sentiment. This led to a decline in consumer confidence in January, marking the first drop in six months.
To worsen the situation, markets were rattled on Monday after a low-cost Chinese artificial intelligence model, DeepSeek, raised the prospect of cheaper AI development and questioned the U.S.’ dominance over AI, leading to massive tech selloffs.
Multiple factors are making markets volatile and dampening investors’ sentiment. It would thus be safe to invest in large-cap value funds. We suggest investing in three large-cap value funds, namely, Northern Income Equity NOIEX, Lord Abbett Affiliated A LAFFX and BNY Mellon Dynamic Value Fund DAGVX.
Consumer Sentiment Takes a Hit
Consumer confidence fell in January, with the University of Michigan’s Consumer Sentiment Index showing a final reading of 71.1, down 3.9% from December’s 74. The reading also fell short of economists' expectations and came in 10% lower than last year’s level. This marks the first decline in consumer sentiment since mid-2024, when the Federal Reserve’s decision to cut rates after years of tightening sparked optimism.
Trump’s election win helped push stocks to new heights, with all major indices hitting record highs. However, stocks lost momentum in December after inflation started creeping up. Additionally, strong job growth reported by the Labor Department signaled a robust labor market.
In response, the Federal Reserve took a more cautious approach during its December meeting, indicating that rate cuts in 2025 could be less frequent as it believes the economy remains strong. Investors are now concerned that slower rate cuts will prolong inflation and lead to higher borrowing costs. As of January, markets are expecting little to no rate cuts, with a 99.5% probability of no change at the Fed’s two-day meeting that begins on Tuesday and a 66.7% chance of no cuts in March.
Also, tech stocks, which have been driving the broader rally over the past couple of years on the ongoing AI enthusiasm, faced a major jolt on Monday. The Nasdaq fell more than 3% to record its worst day since Dec. 18 as investors cast doubts over U.S. tech dominance after China’s DeepSeek launched R1 last week. R1 is an open-source reasoning model, that outperformed OpenAI’s in multiple tests and shot to popularity on app store rankings.
3 Best Choices
We've identified three large-cap value mutual funds that have demonstrated impressive annualized returns over 3-year and 5-year periods. These funds also hold a Zacks Mutual Fund Rank of #1 (Strong Buy), require an initial investment of no more than $5,000 and have a low expense ratio.
The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolio without several commission charges that are associated with stock purchases are primarily why one should be parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
Northern Income Equity fund seeks to provide a high level of current income with long-term capital appreciation as a secondary objective. NOIEX’s approach is to identify the securities of companies that generate high current yields and offer prospects for growth and possible capital appreciation. In pursuing its objective, the Northern Income Equity fund invests at least 65% of its total assets in a mix of income-producing equity securities, with no limit on the fund's ability to invest in non-investment grade fixed income and convertible debt securities.
NOIEX’s 3-year and 5-year annualized returns are 8.9% and 12.9%, respectively. Northern Income Equity fund has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.49%.
To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
Lord Abbett Affiliated A fund seeks long-term growth of capital and income without excessive fluctuations in market value. LAFFX invests at least 80% of its net assets in equity securities of large companies, with a market capitalization of at least $5 billion dollar at the time of purchase.
LAFFX’s 3-year and 5-year annualized returns are 5.3% and 7.9%, respectively. Lord Abbett Affiliated A fund has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.68%.
To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
BNY Mellon Dynamic Value Fund seeks capital appreciation. DAGVX invests at least 80% of its assets in stocks. BNY Mellon Dynamic Value Fund invests in companies of any size, and uses a value approach in selecting stocks for investment.
DAGVX’s 3-year and 5-year annualized returns are 10.2% and 13.1%, respectively. BNY Mellon Dynamic Value Fund has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.93.
To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
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