Stop focusing on indices and sectors, and start focusing on individual stocks: BMO’s Brian Belski
Unfazed by the stock market’s bumpy start to the year, strategists from Goldman Sachs Group Inc. to UBS Global Wealth Management reiterated their bullish calls on bets that equities can weather higher interest rates and rising bond yields.
“The selloff in some long duration high quality names might be overdone soon,” Goldman strategists led by Cecilia Mariotti wrote in a note dated Monday. With real yields not expected to move much higher, “valuations are unlikely to become a binding constraint for equities,” the strategists wrote in a note.
U.S. stock market futures gained on Tuesday -- after the worst start of a year since 2016 for the S&P 500 -- while European benchmarks rebounded, in tentative signs that the rout may be easing. Indications that the U.S. Federal Reserve may tighten policy more aggressively than expected triggered a selloff on both sides of the Atlantic, with pricier growth stocks and tech the hardest hit.
“While investors should brace for volatility as markets adjust to the more hawkish line from the Fed and the latest wave of COVID-19 infections, we still expect the rally to resume,” Mark Haefele, chief investment officer at UBS Global Wealth Management wrote in a note on Tuesday. “The normalization of Fed policy shouldn’t dent the outlook for corporate profit growth,” supported by consumer spending and easy access to capital.
Adding to the chorus of assurances that a more hawkish Fed doesn’t fundamentally change the positive outlook for stocks, BlackRock’s Investment Institute recommended investors use selloffs to add risk. JPMorgan Chase & Co. strategists said on Monday that it’s time to buy the “arguably overdone” dip.
Optimism is also abounding in Europe, a region which has been singled out as a potential haven in a rising rates environment, with stocks that are generally cheaper and less sensitive to hikes.
“The U.S. is more vulnerable to rising bond yields as it has a larger weight in long duration sectors,” and the earnings gap between the U.S. and Europe is narrowing, Bernstein strategists led by Sarah McCarthy wrote on Monday, recommending an overweight position on stocks, and a preference for Europe.
BNP Paribas strategists including Ankit Gheedia concurred: “We believe a combination of earnings revisions, bearish positioning in European equities and attractive valuations could pave the way for a strong equity rally over coming months,” they wrote.