In investing, hyperbole is as common as tunnel vision. This cycle or its trades are usually the best, the worst, or the best until the next cycle arrives.
But this time it might be true. Investors are worried about what Andrea Scicione, head of strategy at London-based economic and investment strategy firm TS Lombard, calls a “fake cycle,” a familiar economic feature in the aftermath of a once-in-a-lifetime pandemic. I am embarking on a situation where I am trying to graft. Meanwhile, the US stock market is the most concentrated in nearly 100 years, global political tensions have reached new heights, and some believe an existential US presidential election is looming. It is being
That “leads to a volatile, zig-zag environment throughout the year,” said Amanda Agati, chief investment officer at Pittsburgh-based PNC Financial Services Asset Management Group.
How do wealthy investors approach such an environment? Given the disruption and crosswinds, there’s more consensus than you might think. Strategists say they will continue to invest but remain defensive and consider a slightly broader allocation to U.S. stocks than those that have dominated the market for the past few years. And be prepared if the Fed cuts rates one or more times this year.
According to many experts, the polarization of the US stock market could be the biggest topic in the market right now. The so-called Magnificent Seven – Nvidia
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microsoft
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tesla
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Amazon makes up nearly 30% of the S&P 500, while the remaining 493 companies are stuck, according to a Goldman Sachs analysis.
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“I’m always hesitant to say we’re in uncharted territory, but we’re almost there in terms of market concentration,” said Don Calcagni, chief investment officer at Denver-based Mercer Advisors Investment Management. “I’m working on it,” he says. “There should be some concern that the valuations of some of these companies are very frothy. There’s value in moving away from the seven a little bit.”
PNC’s Agati believes corporate earnings will be key in the coming quarters. “Given where valuations have moved and we don’t see many catalysts, it’s hard to argue that the market will continue this wild rally,” she says. “Right now, unless we see expansion in terms of revenue, growth, participation and re-acceleration of revenue growth, we’re struggling to see any catalyst for continued upside.”
Scicione isn’t too concerned about narrow market leadership. Investors are right to be “picky” about the stocks they invest in, he wrote in a research note in late March — and there are many concerns about whether the current market qualifies as a bubble. However, he believes this is not the case.
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“High-tech companies are very profitable and are likely to continue to be profitable,” he said, buoyed by advances in artificial intelligence technology.
Geographical distribution is another area where selection is important. Most analysts believe the United States is the best bet in the current global situation, but they also see value outside its borders. Calcagni suggests investors looking for income consider markets outside the developed world. In contrast, PNC is more focused on emerging markets, which Agati points out are currently much cheaper than historically.
But both agree that investors should give China wide leeway for now. Too many questions remain about how well governments can respond to the slowing, and still slowing, pace of growth.
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When it comes to bonds, Calcagni and Agati suggest investors add duration, or hold bonds for longer periods of time. Calcagni said Mercer Advisors recommends about four to six years.
Agati said PNC is advising clients with excess cash to start securing higher yields from longer-dated bonds in anticipation of the Fed potentially lowering rates at some point this year. It is said that there is.
Finally, Calcagni says the US presidential election is still more than six months away, but it may be coming sooner than we think. He said there are many unknowns about a potential rematch between the two candidates after the hotly contested 2020 result.
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“I’ve always been hesitant to incorporate political calculations into investment theory,” Calcagni says. “I don’t know what that actually means, except that maybe if something goes wrong in November, it could cause a lot of volatility in the market.”
Overall, Agati said he is advising his clients to stay invested, but with a “slightly defensive strategy.”
“We don’t believe that investors will be rewarded for making big bets in a particular direction. Don’t start bottom fishing for things like deep value or really cyclical elements of the market. “It’s still a little early to go to the edge,” she says. “This is FOMO [fear-of-missing-out] market environment. And if you don’t stay in it, you can get left in the dust really easily. ”
