US Markets

CIO: Investors in these stocks, beware

Pro: The Federal Reserve isn't stupid

With another Federal Reserve rate hike looming, investors need to be suspicious of low-volatility stocks that pay high dividends, Wealth Enhancement Group chief investment officer Jim Cahn said Thursday.

That's because bond investors have piled into the stocks, which have done well over the past two years, he explained.

"The problem is, once interest rates start to rise, a lot of investors that favored these … consumer discretionary and also utilities stocks are going to pile right back out of those names back into bonds," Cahn said in an interview with CNBC's "Closing Bell."

On Thursday, New York Fed President William Dudley said the central bank is likely to raise interest rates this summer if the economy meets its expectations.

"June is definitely a live meeting," Dudley, a voting member of the Federal Open Market Committee, said.

His comments followed Wednesday's release of the Fed's April meeting minutes that said a June rate increase was likely if data improves.

Rate hike concerns sent stocks lower Thursday, with the erasing gains for the year so far.

Closing Bell Exchange: Fed & markets

However, Cahn still likes equities, as long as investors are diversified.

"The Federal Reserve isn't stupid," he said. "They don't hike interest rates unless the economy is showing strength, and that tends to be good for revenues and also tends to be good for margin."

Susan Fulton, president and co-founder of FBB Capital Partners, doesn't think there will be a rate increase in June, because she said there is nothing indicating that economic momentum has begun.

While financial stocks moved up on the rate hike speculation, Fulton said she wouldn't bite.

"Do not get back in the banks," she told "Closing Bell."

"The banks have an incredible number of regulatory issues. They have a lot of problems with balances."

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— CNBC's Fred Imbert and Evelyn Cheng contributed to this report.