Wells Fargo betragter ikke dårlige nyheder som en svag job-udvikling i USA som et problem, for det får blot centralbanken til at fortsætte med penge-udpumpningen. Men da økonomien trods alt bevæger sig opad, giver det flere investormuligheder i de cykliske sektorer, og banken overvægter store og små amerikansk-fokuserede aktier samt Emerging Markets aktier. Blandt de store selskaber peger banken på kommunikation, energi, finans, industrier og materialer.
Is bad going to be good, at least for now?
Did you see how the markets responded to last Friday’s employment report covering the month of May? The bond market responded as we would expect with the yield on the 10-year Treasury note inching lower by a handful of basis points (100 basis points equals 1%) in the wake of a report that came in below expectations in terms of job creation.
And while the unemployment rate dropped just slightly more than expected, a contributing factor was people leaving the job market as the labor force participation rate moved lower (fewer working-age people considered themselves “in” the workforce). But the S&P 500 Index rallied close to 1% on the day, which carried the performance of the index into positive territory for the week.
As a result, we have received a number of questions from investors asking why the stock market posted a nice gain on the day when the labor market report was weaker than expected. Wasn’t the report “bad”?
The simple answer is, the market’s line of thinking is that a weaker than expected labor market may very well cause the Fed to keep its foot on the monetary gas pedal and, therefore, delay making any policy adjustments or even talking about the possibility of making adjustments. Recall that the Fed is currently buying $120 billion of bonds in the open market each month, which pumps liquidity into the financial system. These measures have helped the economy recover and push asset prices (i.e., stocks and home values) higher.
So how does this factor into our guidance? We believe the easy money policies of the Fed will last for some time. We do not expect the Fed to raise interest rates this year or next but do think it is likely our central bankers start to hint that they are thinking about tapering their bond purchases, possibly as soon as this fall.
That means we continue to lean toward cyclical sectors that are sensitive to the ebb-and-flow of the economy. As the global recovery continues, we favor overweighting exposure tactically to large- and small-capitalization domestic equities as well as emerging market equities. Favored domestic large-cap sectors include Communication Services, Energy, Financials, Industrials, and Materials.
In our view, rising interest rates and inflation early in a new cycle can be thought of as confirmation that the economy is climbing out of recession and demand is increasing. We believe inflation may continue to climb somewhat higher in the near term but decelerate as we move through 2022.
Our preference for equity over fixed income reflects those beliefs.
So for now, bad economic news just might be good for stocks.
Each asset class has its own risk and return characteristics. The level of risk associated with a particular investment or asset class generally correlates with the level of return the investment or asset class might achieve. Stock markets, especially foreign markets, are volatile. Stock values may fluctuate in response to general economic and market conditions, the prospects of individual companies, and industry sectors. Foreign investing has additional risks including those associated with currency fluctuation, political and economic instability, and different accounting standards.
These risks are heightened in emerging markets. Small-cap stocks are generally more volatile, subject to greater risks and are less liquid than large company stocks. Bonds are subject to market, interest rate, price, credit/default, liquidity, inflation and other risks. Prices tend to be inversely affected by changes in interest rates. Sector investing can be more volatile than investments that are broadly diversified over numerous sectors of the economy and will increase a portfolio’s vulnerability to any single economic, political, or regulatory development affecting the sector. This can result in greater price volatility.