Cheap Stocks Are Safer Now: JPMorgan’s Kelly
A market correction could knock the air out of mega-cap tech stocks, the strategist says.
J.P. Morgan Asset Management’s chief global strategist sees positive conditions ahead for stocks, although valuations for companies that have led this year’s rally cause some concern.
“I look at valuations a lot. I do worry about the mega-cap stocks that have really led this charge. But overall it could be pretty good,” David Kelly said Wednesday on CNBC’s “Power Lunch,” responding to a question about the path for stocks in the next six months to a year.
“The key point is eventually inflation’s going to get back down to where we were in the last decade. It’s going to get back down to 2%. Eventually the Fed’s going to have to react to a recession and cut rates back down again. And so you get back into a slow-growth, low-inflation environment in which companies are very good at maintaining margins,” Kelly, who also heads the firm’s Global Market Insights Strategy team, said.
“U.S. companies can do well in a cold climate; I think the stock market’s taking some comfort from that,” he added. The Fed may have to cut rates in 2024, he said, noting that economic soft landings don’t last forever.
Kelly suggested investors stay in parts of the market that didn’t participate in this year’s first-half rally and are just starting to show signs of life.
“If you run into a bump in the market, a problem, the very things that got the most air under them are going to fall the most. So I’d rather look at valuations very carefully right now because at some stage we’re going to have some turbulence, and I wouldn’t want to be in the overpriced stocks at that time,” he said.
Kelly, responding to a question about choice market sectors, said he’d be a little overweight international stocks and that industrials can do reasonably well. He likes financial stocks if they can get through the current cycle with a prolonged downward sloping yield curve.
High-quality fixed income looks better priced than it has in many years, Kelly said, adding this is one year he probably wouldn’t be underweight bonds.
Pictured: David Kelly