Need to Know: Investors have been scared out of this group of stocks, says fund manager, who offers five ideas for the rebound to come.
China has been talking up its markets, and that’s lifting all boats this morning, with Wall Street poised for a strong start ahead of what’s expected to be the first Fed rate hike in more than three years.
Also helping are some positive rumblings around Ukraine-Russia negotiations as a brutal war continues. Apart from the devastating humanitarian disaster, the crisis has sparked surging commodity prices and inflationary worries.
Those worries have fed to losses in particular for the tech heavy Nasdaq Composite
and smaller companies
This chart from fund house Artemis shows how valuation multiples of small companies have seen harder hits than large-caps over the last six months.
Our call of the day from Artemis’ head of U.S. equity strategies, Cormac Weldon, is optimistic on this asset class. “Once risk aversion abates, we would expect small-caps to outperform: fundamentals and growth will eventually prevail over sentiment,” he said in a note to clients.
For starters, investors in the U.S. have a huge selection of innovative companies to choose from, with active managers often better placed to generate alpha as many of those stocks go overlooked by Wall Street.
He expects “inflationary panic will start to ease,” at some point, noting that used-car prices are starting to tame and investors should expect a disinflationary effect kicking in from the massive technology investment by U.S. companies.
Weldon explains that the market is “extremely polarized” right now, with investors rotating between extremes of value and growth amid a fast-moving inflation and interest-rate debate. He expects stock specifics will become important again, and his cyclical-growth mixed portfolio should do well.
But Artemis is wary of fast-growing companies with big promises, instead focusing on growth and quality. Bio-Techne
and Syneos Health
and cyclical/financial names like Signature Bank
fit that bill, he said.
is also on his list, as the biopharma group recently spurned a German bid. “t is well-positioned to take advantage of the massive influx of interest and investment flowing into the mRNA area as well as growth in the cell and gene therapy space more broadly,” he said.
And he’s been adding to his Planet Fitness
position as COVID disruptions fade and the gym chain has been lagging other reopening stocks. Another plus is that the company is leaner and fitter after it removed excess capacity during the pandemic.
Finally, he likes Pool Corporation
which is a niche provider of pool supplies, giving it an enviable degree of pricing power. “Moreover, during the crisis people used their savings – and filled their time – by installing swimming pools,” said Weldon.
After some bruising sessions, the Hang Seng
rebounded 9% as China vowed to keep its stock markets stable and boost economic growth. Beijing has also promised to work with U.S. regulators over delisting concerns, feeding into hefty gains for Alibaba
and other U.S. -listed Chinese stocks.
Ahead of the Fed outcome and news conference with Chair Jerome Powell, we’ll get retail sales, import prices, a home builders’ index and revised business inventories.
As the bombardment of Kyiv and other cities continues, there are fresh hopes that negotiations may be getting somewhere, after the Kremlin proposed a “Swedish-style” neutral Ukraine. Ukraine’s president Volodymyr Zelenskyy will address U.S. Congress later, after meeting with Polish, Czech Republic and Slovenian heads on Tuesday.
employees are calling for walkouts over the next week to protest the company’s response to a Florida’s ‘Don’t Say Gay’ bill.
are higher, led by tech
with oil prices
clawing back some ground, a day after entering a bear market. Asia stocks bounced, and European equities
are also higher. Gold
and the dollar
continue to pull back.
“As we start the hiking cycle, it’s worth highlighting that hiking cycles in the fiat money era (1971-), when debt has been constantly increasing, have generally eventually led to a financial crisis somewhere around the world,” notes Deutsche Bank strategist Jim Reid in our chart of the day.
“With U.S. equities still at some of their highest valuations in history, with global housing having boomed during the pandemic, and with global debt at record highs, the Fed (and other central banks) shaking the tree is sure to bring something we can add to the events shown in the graph,” he said, though noting that monetary policy usually acts with a lag.
These were the most-searched tickers on MarketWatch as of 6 a.m. Eastern Time.
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