Reprinted from: Zhitong Finance
04/19 22:06
Sinead Colton Grant, chief investment officer of wealth management, said the U.S. stock market's retreat from its all-time highs set late last month provides investors holding cash with a buying opportunity. She said the index surged 10% in the first quarter, its best start since 2019, after rising 24% in 2023, and the three-week slump was a healthy consolidation for traders. From here, Colton Grant expects the rally to not only resume but extend based on strong earnings growth and continued economic momentum, potentially pushing the S&P 500 above 5,400 before the close of 2024.
“There are many examples in history where investors waited to find the absolute low and missed it, so if you have capital to deploy, now is a good time to start adding exposure,” she said in an interview. “This is a fascinating market, and the worst thing for investors to do is to be completely in cash.”
Bank of New York Mellon Wealth Management is overweight U.S. large-cap stocks, preferring them over international and emerging market stocks. Although the U.S. stock market has a higher price-to-earnings ratio than other markets, Colton Grant said she likes the free cash flow generated by large companies. She is particularly bullish on the technology, health care and industrial sectors.
The S&P 500 was on track for its third straight weekly decline as investors scaled back expectations for a Federal Reserve rate cut following a series of red-hot inflation reports. Atlanta Fed President Raphael Bostic reiterated on Thursday that he does not think any rate cut would be appropriate before the end of the year.
But BNY Mellon’s rate cut forecasts have consistently been below the market’s expectations for the number of rate cuts this year. When investors were expecting six rate cuts, the bank expected four. Now, the bank expects only one rate cut from the Fed, in December. “For the first time, we’re seeing the market really react to lower expectations for rate cuts, which I think is healthy,” said Colton Grant, noting that stocks barely reacted early this year as traders scaled back their bets on rate cuts.
Earnings are key to stocks rising from current levels. BNY Mellon Wealth Management expects earnings to grow 11% in 2024. Colton Grant doesn't think it matters whether the Federal Reserve cuts rates. She said that because interest rates have been near zero for most of the time since the 2008 financial crisis, one view is that the stock market needs near-zero interest rates and inflation close to 2% to perform well. But to her, that's flawed logic.
“The stock market can do well in a 2% to 4% inflation range, which is where we are right now,” said Colton Grant. “The problem comes when we get inflation above 5% and heading towards double digits, as we are in 2022. But we think this is actually a pretty favorable environment for the stock market right now.”
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