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Tuesday 21 June 2022
Today’s newsletter is from Brian Sozieditor in chief and Anchor in Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and up LinkedIn.
My dad told me two interesting things during our brief conversation about Father’s Day.
First: “Hello, when does the recession end?” And second: “Gas will be $ 7 a gallon soon.”
I’ve been trying very hard for a long time to keep my job separate from family conversations – I’re not going to be the type to offer a stock option or financial forecast to a family member just to watch it swell in their face.
But with the wet courage of a few light beers, I got the bait this time with my dad.
Happy Father’s Day.
I proudly declared that, technically, We are not in a recession, although it may appear in early 2023, as outlined a few days ago by Deutsche Bank economist Matthew Luzzetti. I then noted that, apart from a hurricane this summer that is hitting key oil-producing assets, gas is unlikely to rise to $ 7 a gallon (from about $ 5) as economic growth slows.
For something more specific, however, I spoke with some of my Wall Street friends to find out what they think about how to handle this market. And many of these people see the investment landscape coming to a head right now: Quality.
“Quality wins over time!” said Brown Brothers Harriman’s chief investment strategist Scott Clemons.
“Our focus is on quality – profit quality, balance sheet quality, business model quality,” said Victoria Fernandez, Head of Markmark Strategy at Crossmark.
But like most people out there, my dad could see what was going on with his money here and now. The quality is cursed. It costs him much more to drive to the golf course in Florida, his groceries are more expensive and, although he will not tell his son, his investments are wrapped in a hammer.
The S&P 500 has fallen nearly 23% so far this year, representing the worst start to the year since 1932. Last week alone, the S&P 500 fell 5.8%, its biggest drop since the COVID-19 market collapsed in March 2020. Household favorite stocks such as Apple (AAPL), Microsoft (MSFT) and Disney (DIS) have fallen surprisingly 25.9%, 26.4% and 39% respectively from the year to date. And Walmart sells two packs of unbranded men’s boxer briefs for $ 23 (which is expensive, in my opinion).
Overall, my dad’s right to be worried. The same for all of you. It gets ugly out there in the stock market and in the real world.
“The sentiment is negative, the attitude is depressing and we have seen some signs that we have reached the extremes,” said Michael Reinking, senior strategist at NYSE Market, in a new note.
At times like these, it’s best to look in the mirror and realize that stocks are likely to be 10, 20, 30, 40, 50 years older than they are today. Believe me, I hate to say such things, but it is right. And the investment community agrees.
Here are some more perspectives:
Keith LernerCo-Chief Investment Officer, Truist
“In our view, investors need to focus on profitable and sustainable growth, on companies that continue to show positive earnings revision trends and are less sensitive to economic growth. We would avoid companies with high beta and higher leverage, given the global economic slowdown and the widening of credit margins.
We are overweight defense sectors, such as healthcare and commodities, which have some of the aforementioned properties of profitable, sustainable growth and lower beta. “We are also overweight in energy and materials, but that reflects more on the elevated geopolitical environment.”
Gabriela SantosGlobal Market Strategist, JP Morgan Asset Management
“In a more uncertain economic environment, we would focus on companies with high sustainable dividends. They help reduce the beta of the share capital as the dividend helps to offset the capital devaluation and also because they are companies that tend to be in defense sectors such as healthcare and basic items.
“We would emphasize dividend viability, however – as well as valuation – by looking at measurements such as sustainable cash flows, a strong balance sheet, stable earnings, free cash flow, P / E and EV / EBITDA.”
Scott ClemonsChief Investment Strategist, Brown Brothers Harriman
“We try hard to keep nervous investors in the market, reminding them that no one is ringing the bell at the end of a bear market and that recovery can be quick and contradictory. In fact, the average return of the S&P 500 from the date of entering the bear market (not the bottom, but the trigger 20%) is 23%. You do not want to miss this.
However, for nervous investors, we point out the benefit of dividends, not only for cash flows, but as buying a company with plenty of free cash flow and a strong balance sheet. Quality wins over time! “
Victoria FernandezChief Markets Strategist, Crossmark
“Our great focus is on quality – quality of profits, quality of balance sheets, quality of business model. These are the companies that we believe will hold theirs against the expected volatility. We are also looking for quality in stable income – buying investment companies with slightly longer maturities to lock in some of the higher interest rates we are seeing at the moment, as we expect yields to start to decline as we see month / month inflation begin to moderate. the next months.
We chose names that fit these parameters, they may not be cheap, but we saw them enter multiple times and score well in the component of factors based on values of our large capital model. We believe in a balanced portfolio with names of both growth and value to overcome uncertainty over the next two quarters. Some of our recent markets include Lockheed Martin (LMT), Metlife (MET), ExxonMobil (XOM) and CVS Health (CVS).
Gargi ChaudhuriHead of Investment Strategy of iShares Americas, BlackRock
“Even after the Fed’s political decision, inflation remains a short-term risk. We believe that it makes sense to consider a hedging strategy with a broadly diversified exposure to inflation-related commodities and bonds.
We view advance yields as attractive at current levels in bonds and high-quality credit report, as the market appears to have fully priced an aggressive Federal Reserve that moves far beyond neutral.
Finally, as profit growth peaks, we believe that diversification at the sub-sector level is becoming increasingly important. We prefer exposure to defense sub-sectors of the stock market such as healthcare, infrastructure and low volatility. “Dividend payers are also an attractive way to attract quality companies with sound balance sheets.”
What to watch today
Chicago Fed National Activity IndexMay (0.47 in the previous month)
Existing House SalesMay (5.40 million expected, 5.61 last month)
Existing House Salesfrom month to month, May (-3.7% expected, -2.4% in the previous month)
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