The Central Bank continues to dominate the economy of not just the US but globally, said Eric Wiegand, portfolio manager at US Bank. (There has been) a break from the trajectory that was witnessed previously; at least the US has the certainty of one rate-hike behind it.
The debate over the number of increases as the economy moves through 2016 is still out there, and the overall impact on currencies in the level of growth that the economy is likely to see in 2016 is still a question mark, he observed.
Asked if investors should focus on value or growth stocks, Eric said there should be an appropriate mix of the two, to be candid. For US Bank, there are certain sectors that offer better opportunities than others including technology, healthcare – a sector for all seasons, select consumer discretionary stocks, financials as well as industrials, he noted.
Financials were favorites at the beginning of 2015 as investors anticipated rate hikes much earlier. Asked if financials could disappoint again next year, Eric said everything is possible certainly. Markets witnessed a pause going back to expectations from the beginning of 2015 playing out. It’s been a market that’s well; it could be resilient, it could be characterized as violently flat, but there are opportunities.
US Bank don’t want to be broad buyers of the market; it wants to focus on select areas and select opportunities, while for the clients it’s a matter of diversification and US Bank wants to be global in its perspective, he explained.
US Bank forecasts the S&P500 index to end 2016 at around 2,225. Asked to comment on their 2015 forecast, Eric said, while it’s still to be determined, the 2015-target for S&P 500 was 2,100. At current levels, the benchmark index is close – within striking distance certainly. The possibility for the market advancing further can’t be ruled out even though diminished volumes are being witnessed.
For US Bank, looking at 2,225 seems more like a continuation of the value story, but actually seeing some earnings growth as well as some dividend benefit to that outlook, looking at the high single-digit to low double-digit type return, he observed.
Asked to comment about opportunities overseas, Eric said US Bank is still in favor of opportunities in developed markets. With the favorable monetary backdrop and further likely easing from central banks, the favorable environment would continue. There has also been some relative improvement – nothing heroic, but slow grinding higher type improvement in the developed markets, he noted.
While the Federal Reserve is tightening lending policies, European and Japanese central banks are loosening. Asked if US Bank prefers them because of the availability of easy money there, Eric answered in negative. Things are a little more complicated than just black and white; there are shades of grey in between. Going forward, if there’s no significant change in policies between the US and other developed markets that exacerbates the currency cross, then investors are likely to witness a favorable backdrop, he concluded.
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