Dan Suzuki is deputy chief investment officer and chairman of the investment committee at Richard Bernstein Advisors, where he is responsible for portfolio strategy, asset allocation and investment management. For more on Kiplinger Personal Finance Magazine's analysis on the rest of the year, read here. 

Kiplinger: How do you see the second half of the year playing out? 

Suzuki: Our base case is for stocks to trend higher until we see signs that earnings are beginning to peak. But there are a few major crosscurrents likely to affect a few parts of the market in different ways. Currently, earnings growth continues to accelerate. 

And critically, it is beginning to broaden — as you’re seeing the baton passed from U.S. mega-cap growth names to other areas of the market, you’ve already started to see performance broaden out. As long as that underlying dynamic persists, it’s very healthy for the market. 

Which areas of the market will carry the baton from here? 

Cheap cyclical sectors, meaning those most sensitive to economic growth. The sectors most likely to drive earnings acceleration from here include energy, industrials and materials. Also, earnings growth should be accelerating for smaller and midsize stocks, and for some areas outside the U.S. — in particular, emerging-markets stocks. 

Emerging markets? Haven’t heard that in a long time. 

They’re extremely cheap and out of favor, having underperformed for over a decade. Low valuation alone is not a good indicator of whether something is an opportunity, but it’s a nice support. Critically for emerging markets, we’re starting to see global economic growth reaccelerate, and that’s reflected in earnings for emerging-markets companies, which are beginning to accelerate more broadly. Also, upward pressure on inflation and commodity prices benefits EM profits. Broad exposure here makes sense — don’t get too caught up in any one country. 

What’s your take on the U.S economy? Are rate cuts from the Federal Reserve off the table? 

I wouldn’t say they’re off the table just yet, but they’re certainly rolling toward the edge. Economic growth is gaining momentum and broadening out, putting upward pressure on inflation and interest rates. We’re probably at the inflection point in the economic cycle, where better growth is no longer unequivocally good. 

There’s a tug-of-war between the benefits for the market of stronger economic growth and stronger earnings and the negative impact of higher inflation, a tighter Fed and rising rates. Some companies will be the beneficiaries of that dynamic; some will be hurt by it. 

Where should investors put their money now? 

Opportunities for returns are generally greatest where the market is less crowded and capital is scarce. Today, U.S. mega-cap growth is where capital is concentrated and valuations are most extreme. The flip side, or the silver lining, is that has created capital scarcity in huge portions of the market. The story of the last 15 years has been all about U.S. mega-cap growth and disinflation. Some of the biggest opportunities now lie at the opposite end of the spectrum. 

Rather than U.S. markets, there are more opportunities internationally. Rather than mega caps, there’s a bigger opportunity in small and mid caps. Rather than growth stocks, there’s more opportunity in cheaper value stocks. Lastly, rather than disinflation beneficiaries, the long-term opportunities lay more in inflation beneficiaries. In terms of U.S. stock sectors, we favor energy, industrials and materials. 

We’ve heard about this rotation of market leadership before, but it has failed to stick. 

There’s nothing new about that story today as opposed to a couple of years ago. A lot of people have been making the same or similar recommendations to buy a lot of these things, and they’ve continued to see these parts of the market underperform — that gets to the timing of when to own these things. The timing really has nothing to do with valuation or sentiment, it’s more a function of earnings fundamentals. 

The good thing for most of these longer-term opportunities is that with earnings on the upswing, the near-term backdrop is also supportive. You just have to be careful about getting over your skis. At some point, when profit growth starts slowing, these areas won’t do as well. 

What’s your earnings-growth forecast for the U.S. market overall? 

Earnings forecasts are more about direction than decimal point for us. For this year, we’re expecting growth in the mid-teen percentages. But you want to be mindful for signs that earnings growth may be peaking — that would be the biggest risk to the market. There’s a lot of earnings momentum now, but as you get out two or three quarters from now, you could see a peak. 

Will the U.S. election have an impact on markets? 

Elections tend to have short-term impacts on market volatility, which makes sense. It’s something that market participants spend a lot of time focusing on as the polls shift and more policy discussions come out of the debates. Most of that is just noise, ultimately. What matters is whether there will be a sustained impact on corporate earnings through policies around fiscal stimulus and spending, or on taxes and tariffs. I don’t know that the ultimate policies are going to be as big as the rhetoric makes them out to be. 

Are you worried about the geopolitical situation? 

In isolation, the impact of geopolitical events tends to be short-lived. They can lead to big market swings, which tend to get washed out within six months or so. Clearly, if companies have more exposure to countries where tensions escalate, the more at risk those companies will be to regulation, taxes, tariffs and the like. 

What else should investors be thinking about now? 

I think in some ways we’re at the height of a de-diversification of portfolios. Every time we’ve had that historically, it hasn’t ended well for investors. They’re shunning diversification, arguably when they need it the most. Seven stocks make up 30% of the S&P 500. T

he U.S. market has gone from 40% of the global market to roughly 64% — a record. As a result, investors are really just making a bet on one part of the market where things are concentrated, both active managers who overweight the U.S and growth-focused parts of the market and index investors who have a passive concentration because that one part of the market has done so well. Instead, investors should be looking to add that diversification into their portfolio — geographically, from a company-size perspective and from a sector perspective.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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All eyes in the oil market are on Iran, as talk of a potential cease-fire deal to end the on-again, off-again conflict between Washington and Tehran sends oil prices sliding. Benchmark West Texas Intermediate crude recently traded near $76 per barrel, down from over $90 recently when U.S. forces were bombing Iran, and Iran was firing missiles and drones at its neighbors around the Persian Gulf. Oil exports from the region have plunged ever since the United States and Israel began the war on February 28, and Iran responded by shooting at oil tankers and other ships trying to pass through the narrow Strait of Hormuz.

Whether a cease-fire can be reached remains to be seen. The United States and Iran have made steps toward ending the conflict before, but have repeatedly clashed over Iran’s claim to control shipping through the Strait of Hormuz, which would give Tehran the ability to charge tolls for safe passage and shut off vital oil and gas exports whenever it chooses. If negotiators can bridge that standoff this time, we look for WTI to retreat further, to a range of $70 to $75 per barrel. If they can’t and Iran continues to threaten ships trying to enter or leave the Persian Gulf, oil could quickly return to $90 or $100 per barrel.

Gasoline prices should move sharply lower if a peace deal in the Middle East can be reached. The national average price of regular unleaded stands at $4.09 per gallon today. Given the current slide in oil prices, retail gas should slip below $4 per gallon in the coming days. But it could shoot right back up if peace talks don’t pan out. Diesel, now averaging $5.37 per gallon, will be slower to retreat, even if oil starts flowing freely out of the Persian Gulf soon. Ukrainian drone strikes on Russian oil refineries are cutting off a major source of diesel fuel from global markets.

Natural gas prices in the United States have been largely unaffected by the fighting in the Middle East or Eastern Europe, since only some of America’s natural gas bounty can be exported to global markets. The amount of gas held in underground storage is a bit above average for this time of year in the United States, and demand hasn’t been strong enough lately to whittle down that extra supply. If another major heat wave grips the Northeast and Mid-Atlantic, gas demand will surge as gas-fired power plants work hard to keep air conditioners running. But if temperatures don’t climb too much, gas supplies should remain abundant, keeping prices in check. The benchmark gas futures contract recently traded at just $2.67 per million British thermal units, near its low for the summer. We look for gas to stay at or below $3 per MMBtu as autumn nears.

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The Federal Reserve held short-term rates unchanged at their July 29 policy meeting, but the long-term bond market was less than happy with Chairman Kevin Warsh’s explanations during the following press conference. Warsh talked a lot about the Fed’s commitment to lowering inflation, but repeatedly cited the recent rise in market interest rates as doing the Fed’s job for it. That suggests, in practice, that Warsh will be OK with a rise in long-term bond rates, as long as short-term rates can stay where they are. Long-term bond investors had hoped for a Fed hike in short-term rates that would lessen the likelihood of future inflation. After they didn’t get that wish, long rates went up as investors assumed that inflation will not be coming down quickly. Warsh also seems to believe that talking tough by itself will reduce inflation expectations, but he has yet to learn the lesson that establishing Fed credibility requires actually raising rates at some point, which his predecessor, Jerome Powell, did in 2022-23.

Upward pressure on long-term bond rates will also continue as long as the Iran war lasts. Ten-year Treasury yields have risen from 4.5% to 4.7% so far in July, and will keep edging upward as long as high crude oil prices threaten to bleed into the rest of the economy, in the form of expensive gasoline and diesel. At the time of this writing, the Iran conflict appears to be widening, with Iran’s proxy militant group in Yemen, the Houthis, now threatening tanker traffic in the Red Sea, and the Iranian Revolutionary Guard acting independently of Iran’s civilian government. A negotiated settlement appears far off. If a cease-fire is reached and doesn’t break down the way the first one did, then the 10-year Treasury’s yield will return to 4.5% or a little less. Without any sort of peace deal, it may approach 5.0% by the end of the year.

Expect the Fed to raise short-term rates by a quarter of a percentage point when it meets again on September 16, unless there is a cease-fire in the Iran war that lasts. Even though Warsh may not want to raise rates, a majority of the 12-member committee will likely overrule him, especially after seeing the fragility of the bond market this week. Certainly, the minutes of the July 29 meeting (to be released on or about August 20) will be interesting to read, and will indicate whether Warsh will go along with the majority sentiment on the committee or seek to impose his will on his colleagues. If the latter, he can probably prevail, given the traditional deference FOMC (Federal Open Market Committee) members normally show to the chair of the Federal Reserve Board. However, that deference may not last if Warsh and the committee come to loggerheads for an extended period of time. The other members will fear that a lengthy period of high oil prices will raise costs for both businesses and consumers, and eventually boost other prices by raising transportation costs, kicking off a new bout of higher inflation.

Mortgage rates are edging up again in tandem with Treasury yields. Thirty-year fixed-rate mortgages are currently around 6.7%. Fifteen-year loans are at 6.0% for borrowers with good credit. Mortgage rates will edge up as long as upward pressure on long-term bond rates remains, but they should remain below 7.0%.

Top-rated corporate bond yields have also been following Treasury yields. AAA-rated long-term corporate bonds are yielding 5.3%, BBB-rated bonds are at 5.6%, and CCC-rated bonds are at 14.6%. CCC-rated bond rates tend to rise when the risk of an economic slowdown mounts, and fall when either the economy strengthens or the Fed cuts short-term interest rates, which eases financing costs for businesses that are heavily indebted.

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These are truly strange times to invest in oil. As if the market gymnastics weren't enough, the price of U.S. crude oil – or at least the front-month futures contract – went negative in April, and not by a trivial amount. At the bottom, West Texas Intermediate was priced below negative $37 per barrel.

Unfortunately, if you're a retail investor, there are limits to how you can profit from this. You can't just show up at the storage sites in Cushing, Oklahoma, get paid $37 per barrel to load up your pickup truck with oil, then promptly dump the barrels on the side of the road as you drive home with your profits.

It doesn't work like that.

If you're an institutional investor or industrial oil trader with legitimate storage and transportation capacity, you can stockpile crude at today's prices, sell it in the futures markets months from now and mint money. But the rest of us have to be a little more creative in how we invest in oil.

Today, we're going to look at some dos and don'ts to show you how to invest in oil the right way.

DON'T: Buy an Oil ETF Without Knowing What You're Buying

The United States Oil Fund (USO, $2.57) might be the worst-conceived investment idea in the history of finance. And yes, we're including the 17th century Mississippi Land Scheme and Dutch Tulip Manias in the list.

USO was that poorly constructed.

You can't buy and hold most commodities, with a few exceptions, such as gold and precious metals. It's generally not practical, so anyone wanting to hold a basket of commodities will generally do so via the futures market. But a futures contract is very different than a stock.

For one, a futures contract has precise expiration date. USO's mandate was to simply buy the front-month light, sweet crude oil futures contract and perpetually roll it over once it expired. So, for instance, it would hold May futures until they expired, then roll those over to June futures.

There's a massive problem with that. Crude oil has been trading in "contango" for most of the past decade. When a market is in contango, longer-dated futures contracts are higher than shorter-dated contracts. If that's confusing, just think of the situation in oil today. No one wants oil today because there is painfully little end demand for it. Therefore, prices are low (or even negative).

But there is demand for oil in the future, so prices are still relatively high if you want delivery in six months or so.

In USO's case, the fund has been perpetually rolling over to more expensive contracts, only to sell them when they approach expiration. In other words, in a contango market, USO will get scalped every month, making less money when oil prices rise and losing more when prices fall.

USO has already had to change its investment mandate multiple times recently to fix these distortions, each time extending its contract exposure further into the future. Those are steps in the right direction, but it's difficult to recommend a fund that keeps changing its investment strategy every few days.

If you insist on playing the oil market with ETFs, consider the United States 12 Month Oil Fund (USL, $10.35). It spreads its portfolio equally over the following 12 months of futures contracts. It doesn't fully escape the contango issue, but it doesn't get utterly slaughtered by it like USO does. Year-to-date, USL has lost 55% vs. a 80% loss in USO.

DON'T: Go Dumpster Diving in E&P

The United States will not stop pumping oil entirely and cede the market to Saudi Arabia and Russia. That's not going to happen. But there will be a shakeout, and it's already happening. Whiting Petroleum (WLL) filed for bankruptcy on April 1, while Diamond Offshore filed on April 27. They won't be the last. Most of the worst-performing stocks of the past 11 years have been in the energy exploration and production sector. Many oil and gas stocks could face a fate similar to Whiting and Diamond Offshore.

Murphy Oil (MUR), Devon Energy (DVN), Range Resources (RRC): All of these should be viewed as highly speculative today. Most will probably escape bankruptcy, but they're still looking at reduced capacity ahead and what is likely to be several more difficult years.

If you want to speculate, by all means, go for it. A moonshot might be just the right move if you're, say, trying to figure out how to invest your stimulus check. Just make sure you're only risking money you can afford to lose.

DO: Focus on Quality and "Pickaxes"

They might not be wildly sexy, but the integrated supermajors are likely your best bet for a long-term recovery in energy prices. These mega-cap energy stocks have the financial strength and the access to capital to survive a long energy drought. Real financial distress is not in the cards any time soon. Yet the stocks are trading at multi-decade lows.

Consider Exxon Mobil (XOM, $43.94). The stock is trading today at prices first seen in 2000 and yields a whopping 8.0%. Depending on how long energy prices remain weak, Exxon may opt to reduce its dividend at some point in the next few years. We can't rule that out. But if you're buying the stock at prices first seen 20 years ago, that's probably a risk worth taking.

Chevron (CVX, $89.71) is in slightly better financial shape than Exxon and a little less likely to cut its dividend. In fact, the company said last month that it expected to keep its dividend intact, come what may from the price collapse.

Of course, you could also go the "pickaxe" route, buying companies that provide services to the industry without having much exposure to energy prices. It's said that the only people who made money during the California gold rush were the shopkeepers selling pickaxes, as the actual miners mostly went bust.

Pipeline operators such as Kinder Morgan (KMI, $15.02) have seen their stock prices collapse this year. But most have limited exposure to energy prices, getting more of their revenues from fixed take-or-pay contracts. Furthermore, most of the major pipeline operators transport far more natural gas than crude oil, and natural gas is still needed to heat homes and power appliances.

If you're going to invest in oil, it's important to remember that today's problems are mostly short-term in nature. It's true that the market is structurally oversupplied, and that doesn't get fixed overnight. But once the economy begins to open up again, energy demand will return to something resembling normal.