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Balance between defensive and cyclicals like health care, says BoA's Marci McGregor - YouTube
Channel: CNBC Television
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again i think we need a couple of months
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of data telling us inflation has peaked
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and probably some visibility into when
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the cycle will stop until then i think
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we have a choppy market so we're talking
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to clients about really managing risk
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not taking any big tactical swings right
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now and we're really on the side of
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higher quality investments until we get
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through this period
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and higher quality uh based on what
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factors
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qualify in terms of where you would like
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to have fresh money put
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i think you want to look at free cash
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flow you want to look at strong balance
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sheets and companies and industries that
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have stronger earnings revisions i would
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be balanced between defensives and
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cyclicals i still like energy especially
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after this reset but i would have some
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defenses like healthcare you know
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especially large pharma i would also
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think about sectors like utilities to
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give me a balance between exposure to
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high fare commodity prices that are
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likely here to stay and managing risk as
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we move ahead
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let's bring in uh victoria fernandez
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crossmark global's chief market
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strategist then scott croner city u.s
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equity strategist to uh kind of kick
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around these same issues and and scott
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uh this is a big question uh given where
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we are on the calendar in the earnings
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cycle uh in terms of the outlook for
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economic growth whether in fact
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corporate earnings and maybe downgrades
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to the profit outlook is the next shoe
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to drop or has the markets behavior for
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six months been essentially uh telling
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you that this is already a foregone
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conclusion and maybe we figured it out
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well i i think they're both good points
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i think that the valuation compression
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we've faced here today
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um has discounted some expectation for
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earnings risk ahead
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our view is that the earnings profile
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for the second half may actually prove
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more resilient than many are expecting
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right now
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and the bigger
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the bigger earnings issue will be
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regarding 23 expectations which probably
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aligns more closely with when a
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recession if it does occur
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occur
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all right um
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victoria you know we did obviously have
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the investors fixate to some degree uh
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this morning on that uh soft ism new
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orders number as well as employment and
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you know the treasury's rallying very
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hard it seemed like a very classic
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growth scare type dynamic and yet the s
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p 500 on the first day of a new month
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we'll see if it carries through but
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manages to get a one percent gain uh and
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we're trading at levels on the s p that
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honestly we're first hit on the downside
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six weeks ago is that just grasping uh
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for for the idea that we've uh we've
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priced a lot in or do you think there's
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some some merit to that idea
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yeah so mike i mean we don't think that
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we've seen the bottom yet i mean when we
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look at all the factors to try to
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determine that we want to say okay have
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we hit peak yields we're talking about
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the treasury's really rallying well i
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mean we have cyclicals underperforming
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defensives you have banks under
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performing utilities you look at the
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copper gold ratio all of those things
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tell us that we should have hit peak
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10-year yields or peak yields and those
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are coming down and we've seen that over
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the last couple of days but we have to
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say does that mean we're at a bottom yet
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and i'm not sure i mean we haven't seen
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the big spike it's actually down six
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percent um today we look at um earnings
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expectations we haven't seen those come
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in we're talking about ism numbers look
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at the pmis too normally we want to see
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those under 50 and i think the biggest
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thing that we're looking for is that
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pivot from the fed and i don't think
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we're anywhere close to that we've got
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to see
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services get hit a little bit the growth
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and services i mean look at real
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consumption for services we got this
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week it was actually up 0.3 so we're
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seeing the growth come down in goods
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we're not seeing it in services i think
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that's what we've got to look at so some
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is priced in but i think there's more to
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go to the downside
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scott i mean
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on some very kind of broad top-down
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level it certainly makes sense to sort
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of stay in a bit of a cautious stance
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right i mean just like last year you
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could just say hey it's a bull market uh
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you know dips are to be bought liquidity
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conditions are very generous the profit
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cycle's your friend don't overthink it
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don't overthinking it this year means
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don't fight the fed don't fight the tape
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all rallies are to be sold at some point
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though that sort of works itself through
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and we're at a point where there's some
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kind of reason to think there's an
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inflection what would you be looking for
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to say that maybe that scenario of
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resilience in the in the second half of
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the year is going to uh basically be
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persuasive
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