Parts of the cyclical trade might be prime for a comeback, says Wilmington Trust’s Meghan Shue.
With shares closing at all-time highs after a record-making week, the slender management from development shares could also be an indicator of what’s to come, the agency’s head of funding technique instructed CNBC’s “Trading Nation” on Friday.
“A lot of commentators and strategists will point to this as a risk, and there are risks around that narrow leadership, but it also presents an opportunity,” the $114 billion money manager stated.
With the financial system slowly reopening and a number of other attainable coronavirus vaccines on the horizon, “we would expect to see some rotation into more cyclically oriented stocks,” Shue stated.
But traders ought to be conscious of the place they select to put their money, she stated.
“When it comes to growth versus value, … value has not really had the conditions in place to outperform,” the strategist stated.
Industrial automation, medical gadgets, off-price retail and a few of the larger money-center banks are on her checklist of alternatives in the industrial, well being care, client discretionary and monetary sectors, Shue stated in an electronic mail to CNBC.
“They tend to do better with higher interest rates, a steeper yield curve, better-than-expected economic growth, so, we wouldn’t be surprised to see periods of outperformance from value,” she stated. “But to go all in on value expecting a sustained period of outperformance is not something we see as likely. Instead, we’d be a little bit more selective within the cyclical space.”
As of now, the three largest dangers to the inventory market’s speedy restoration rally are reopening obstacles, a pickup in small enterprise bankruptcies and a attainable company tax enhance ensuing from a Democratic sweep in the November elections, Shue stated.
“We wouldn’t be overly defensive in this market, but we are cautious,” she stated.
“We see some really interesting dual optionality with gold,” Shue stated. “We’ve had a really rapid run in the equity market. If we did see a little bit of risk being taken off the table by investors, we would expect gold to do well. But it also can do well in … a really rapid recovery.”
Better-than-expected development and faster-than-expected inflation may also be key catalysts for gold, the strategist stated.
“It really is a tail risk hedge, not just a downside risk hedge,” she stated.