John Hancock’s Emily Roland says investors still have time to get an end-of-year bargain.
“Favoring the bond store over the equity store during this holiday shopping season,” the co-chief investment strategist of John Hancock Investment Management told Bloomberg Television’s Surveillance on Friday. “The fixed-income store is where a lot of the bargains are. Look at investment-grade corporate bonds. We’re seeing a big price decline similar to ‘08 or ‘09 levels. We like the income there, the total return potential.”
Roland says shoppers must be much pickier in the stock market, given central banks worldwide are tightening liquidity and the Federal Reserve is determined to whip inflation, even if it means slowing the US economy enough to threaten a recession.
Choosing which sectors to be in is made more challenging by the stock rally of the past two months, before the Fed’s hawkish rhetoric earlier this week pushed investors into a risk-off frame of mind.
“It is so amazing to see this re-rating in stocks that began at the beginning of the quarter,” Roland said. “We saw the S&P 500 start at 15 times forward earnings. Now we’re trading at around 17.5 times, which means stocks are more expensive than their 20-year average. We would look to find areas that are already priced for a recession. There aren’t many.”
Among the sectors where Roland sees opportunity are mid-cap value stocks with steep trading discounts and health-care companies “with high-quality balance sheets and cash on their balance sheets.”
While she sees the Fed likely having to change its tight monetary policy in the second half of 2023 to support the economy, for now, Roland says, “we want to lean into bonds. We like the idea that bonds are working in a portfolio” by providing income.
--With assistance from Lisa Abramowicz.
This article was provided by Bloomberg News.