"Investment strategies should involve a greater emphasis on value stocks."
In the current economic climate, Paul Quinsee of J.P. Morgan Asset Management advises investors to focus on value stocks and sectors that demonstrate resilience or offer long-term growth potential. This strategy is particularly relevant in the face of economic uncertainties and market volatility.
Quinsee emphasizes the importance of companies and sectors that can provide certainty and consistent returns, even in volatile conditions. This approach supports investing in stocks with solid fundamentals and consistent earnings.
The Financial sector, including large institutions like JPMorgan Chase, continues to perform well despite challenging environments, indicating attractive long-term prospects for value-oriented financial stocks. Health Care, Consumer Staples, and Utilities have held up relatively well during times of economic uncertainty and volatility, making them preferred sectors for value investors seeking stability.
Value stocks, in general, are better positioned as growth stocks face valuation pressures and volatility. Companies heavily affected by the pandemic - banks, cyclicals, industrials, and travel companies - present good opportunities for recovery.
U.S. companies in the S&P 500 have increased their earnings by an average of 12% in the first quarter, and even higher growth is expected for the second quarter. However, some market segments, like growth stocks, seem expensive, and investors should approach them with caution.
The era of low interest rates in the US is coming to an end. Historically, periods of high inflation have been supportive of value stocks. Earnings expectations are mostly average or slightly below average, but corporate profit recovery is above average in both strength and breadth.
While some market segments in the U.S. look overvalued, valuations say little about short-term earnings potential and are more relevant for long-term earnings prospects. Investors should try to include value companies within their allocation, in addition to technology-driven growth companies.
Online retail and streaming services are also seen as long-term growth trends. Great potential is seen in cloud computing, which is expected to rise to 50% of technology budgets in the near future.
Significant cost pressures on companies in the US are being seen, not just in commodities, but also in wages, especially in the low-wage sector. The technology sector has seen repeated changes in market leaders over the past few decades.
Equities are still an important asset class, but now is not the time to significantly increase allocation, rather to adjust selectively. The key topics discussed at the recent meeting include earnings expectations, corporate profit recovery, and market valuations.
Economic and social policy that prioritizes stability and growth could benefit from focusing on sectors like financial institutions, health care, consumer staples, and utilities, as they demonstrate resilience and long-term growth potential, even during volatile economic conditions. On a personal-finance level, investors might consider allocating some resources to value stocks, which could be better positioned in times of market volatility compared to growth stocks.
