Parts of cyclical trading could be critical to a comeback, says Meghan Shue of the Wilmington Trust.
With Stocks are nearing all-time highs After a record week, close leadership by growth stocks could be an indicator of the future, the company’s head of investment strategy told CNBC “Trading nation” on Friday.
“Many commentators and strategists will point this out as a risk, and there are risks related to this close leadership, but it also presents an opportunity,” said the $ 114 billion money manager.
With the economy re-opening and several possible coronavirus vaccines on the horizon, “we would expect some rotation into cyclical stocks,” Shue said.
But investors should be careful about where they put their money, she said.
“When it comes to growth versus value … value didn’t really create the conditions for outperformance,” said the strategist.
Industrial automation, medical equipment, low-cost retail stores, and some of the larger money center banks are on their list of options in the UK industrial, Health care, Consumer Discretionary and financially Sectors, Shue said in an email to CNBC.
“They tend to do better with higher interest rates, a steeper yield curve, and better than expected economic growth. So we wouldn’t be surprised if we saw periods of outperformance against value,” she said. “However, we don’t think it’s likely that we will be any more selective in the cyclical space if we expect the value of continued outperformance.”
As of now, the top three risks to the rapid recovery in stock markets will be reopening barriers, a revival in small business bankruptcies and a possible corporate tax hike that will result from a democratic turn in the November elections, Shue said.
“We would not be overly defensive in this market but we are careful,” she said.
“We’re seeing a really interesting double option with gold,” said Shue. “We’ve had a very fast run in the stock market. If we saw a little risk taken off the table from investors, we’d expect gold to do well. But it can do well in … a really quick recovery, too. “
Better than expected growth and faster than expected inflation can also be important catalysts for gold, the strategist said.
“It’s really a tail-risk hedge, not just a down-risk hedge,” she said.