Historically, September has been a seasonally weak month for stocks, and the market’s performance over the past month has certainly polished that reputation. Aggressive comments from key Federal Reserve officials have further compounded market jitters at a time when investors are anxiously weighing their next move. Cleveland Fed President Loretta Mester said last week that she sees more room for further rate hikes and that a recession won’t stop the central bank from acting. With monetary policy poised to tighten further in the coming months, and Wall Street plunged into the depths of a bear market abyss, many investors are beginning to wonder if now is the time to get out of the stock market and put their money elsewhere. asset classes. CNBC Pro spoke to market watchers and reviewed research from investment banks to find out what the pros think. State Street Ben Luk, senior multi-asset strategist at State Street Global Markets, believes it “doesn’t make sense” for investors to leave stocks, simply because “there really aren’t too many bond markets to go to anyway.” Instead, it’s about where investors allocate their money within the space. “We like quality defensive companies that pay good dividends. We like energy stocks, we like materials stocks, we like health care stocks, that’s going to be one area that we’ll still stick to in terms of stock preference.” stocks,” Luk told CNBC Pro. But he is taking a “market-neutral” approach, in which he funds his “overweights” through “underweights” in financials, utilities and retail, thereby maintaining his overall stock allocation. inside the wallet. He believes that a portfolio comprising 50% stocks, 30% bonds and 20% cash “still works well” and does not require “a major change” at this time. But he warned that the cash allocation could increase as uncertainty increases. Cash levels in previous “crisis scenarios,” such as the dotcom bubble and crash of 2008, were between 25% and 30%, compared to the current level of around 19%, Luk noted. Within the bond space, he believes US Treasuries will benefit more from capital inflows into the US as recession risks rise. They are the most defensive when it comes to hedging against equity risk, Luk said. UBS The 60-40 balanced portfolio, with 60% invested in stocks and 40% in bonds, has traditionally been a mainstay of a diversified investment strategy. But Kelvin Tay, regional investment director at UBS Global Wealth Management, believes the strategy could “suffer” as the market environment evolves. “We’ve been advocating for investors to have alternatives in their portfolios because, over the next five years, as we move from a very low interest rate environment to a structurally higher interest rate environment, traditional balanced portfolios of bonds and stocks will be affected. This year has been really eye-opening,” he said. Investors should have exposure to private equity, private debt and hedge funds to “anchor” the portfolio, he added. Tay noted that macro hedge funds have done “very well” because of the flexibility to adjust their holdings, while private equity’s longer investment horizons mean “returns are typically much better” if investors use them. keep longer. BlackRock Meanwhile, BlackRock, the world’s largest asset manager, said in a Sept. 26 note that it has a dovish view on stocks. “Many central banks fail to recognize the extent of the recession needed to bring down inflation rapidly,” Jean Boivin and her team of strategists at the BlackRock Investment Institute wrote in the note. “Markets haven’t priced in that, so we avoided most stocks.” He said he doesn’t see the Fed delivering a soft landing, which in turn would create more volatility and pressure on risk assets. “We are tactically underweight developed market equities as equities are not fully pricing in downside risks… We prefer investment grade credit as yields better offset default risk. “Quality can weather a recession better than stocks. We find inflation-linked bonds more attractive and stay cautious with long-term nominal government bonds amid persistent inflation,” Boivin said. Goldman Sachs Goldman advises investors to prioritize short duration stocks over long duration ones. “Stocks with heavily weighted cash flows into the distant future are more sensitive to changes in the discount rate via higher interest rates,” Goldman strategists led by David Kostin said in a note on 23 of September. “Elevated uncertainty argues for defensive positioning. Rising rates mean short duration will outperform long duration. Own stocks with ‘Quality’ attributes such as strong balance sheets, high returns on capital and stable sales growth,” he added. The bank’s “basket of short-lived stocks” includes Macy’s, General Motors, Warren Buffett’s favorite Occidental Petroleum, Regeneron Pharmaceuticals, Micron, Advanced Micro Devices and Valvoline. Stocks that made up Goldman’s “high-quality basket” include Alphabet, O’Reilly Automotive, Home Depot, Thermo Fisher Scientific and Accenture.
Stock Strategists and How Investors Should Trade Volatility