Investors have been spooked by this group of stocks, says the fund manager, who offers five ideas for the upcoming rebound.
Margarita M. Phillips
4 min read
China has been talking about its markets, and it’s lifting all boats this morning, with Wall Street off to a strong start ahead of what is expected to be the Fed’s first rate hike in more than three years.
Some positive rumors around Ukraine-Russia negotiations are also helpful as a brutal war continues. Besides the devastating humanitarian disaster, the crisis has caused a spike in commodity prices and inflationary concerns.
Those concerns fueled losses, particularly for tech heavyweight Nasdaq Composite COMP,
and small RUT companies,
This chart from fund house Artemis shows how the valuation multiples of smaller companies have been hit harder than large caps over the past six months.
Artemis/Refinitiv
Our call of the day of the head of US equity strategies at Artemis, Cormac Weldon, is bullish on this asset class. “Once risk aversion subsides, we expect small caps to outperform: fundamentals and growth will eventually trump sentiment,” he said in a note to clients.
For starters, investors in the US have a huge selection of innovative companies, with active managers often better positioned to generate alpha, as many of these stocks are ignored by Wall Street.
He expects “the inflationary panic to start to subside” at some point, noting that used car prices are starting to tame and investors should expect a disinflationary effect from massive technological investments by American companies.
Weldon says the market is “extremely polarized” right now, with investors swinging between the extremes of value and growth amid a rapid debate over inflation and interest rates. He expects the specifics of equities to become important again and his blended cyclical growth portfolio should perform well.
But Artemis is wary of fast-growing companies with big promises, instead focusing on growth and quality. Bio-Techne TECH,
and Syneos Health SYNH,
and cyclical/financial names like Signature Bank SBNY,
fits this bill, he said.
Maravai Lifesciences MRVI,
is also on its list, the biopharmaceutical group having recently rejected a German offer. “It is well positioned to capitalize on the massive influx of interest and investment in the mRNA field as well as growth in the field of cell and gene therapy more broadly,” he said. declared.
And he added to his Planet Fitness PLNT,
position as COVID disruptions fade and the gym chain lags behind other reopening stocks. Another benefit is that the company is leaner and fitter after cutting excess capacity during the pandemic.
Finally, he likes Pool Corporation POOL,
which is a niche supplier of swimming pool supplies, giving it enviable pricing power. “Also, during the crisis, people used their savings – and filled their time – by installing swimming pools,” Weldon said.
The buzz
After a few bruising sessions, the Hang Seng HSI,
rebounded 9% as China pledged to maintain stability in its stock markets and boost economic growth. Beijing has also promised to work with US regulators on delisting issues, fueling big gains for Alibaba BABA,
JD.com JD,
and other Chinese stocks listed in the United States.
Ahead of the Fed’s result and press conference with Chairman Jerome Powell, data showed retail sales rose 0.3%, below expectations for a 0.4% gain in February. Import prices dipped slightly, gaining 1.4% in the month from 1.9% previously. A home builder index and revised business inventories are still to come.
Read: Four things to watch out for at the end of Wednesday’s Fed meeting
As the bombardment of kyiv and other cities continues, there are renewed hopes that the negotiations will succeed, after the Kremlin proposed a neutral Ukraine “Swedish style”. Ukrainian President Volodymyr Zelenskyy invoked Pearl Harbor and the September 11 attacks as he urged the US Congress to do more to help save his country. This is after meeting the Polish, Czech and Slovenian leaders on Tuesday.
Disney DIS,
employees are calling for walkouts over the next week to protest the company’s response to Florida’s “Don’t Say Gay” bill.
BIIB Biogenic Stock,
takes a boost after sharing more positive long-term data on its Alzheimer’s drug.
Starbucks SBUX,
climbs after the coffee maker said CEO Kevin Johnson would step down, with ex-chief Howard Schulz for now.
The steps
DJIA Stocks,
SPX,
are higher, led by COMP technology,
with CL00 oil prices,
BRN00,
wavering, a day after entering a bear market. Asian stocks rebounded and European stocks SXXP,
are also higher. Gold GC00,
and the dollar DXY,
keep going back.
Table
“As we begin the hiking cycle, it should be pointed out that hiking cycles in the fiat currency era (1971-), when debt kept rising, usually eventually led to a crisis. somewhere in the world,” notes Deutsche Bank strategist Jim. Reid in our card of the day.
Uncredited
“With US stocks still at some of their highest valuations in history, with global housing booming during the pandemic, and with global debt at record highs, the Fed (and other central banks) are shaking the tree is sure to bring something we can add to the events shown in the chart,” he said, while noting that monetary policy typically acts with a lag.
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