The volatile start to 2025 for financial markets may offer new opportunities for investors. Here are three strategies to consider.
About 10 weeks into the year, investors have already faced twists and turns. They have gone from being bullish about Federal Reserve rate cuts and U.S. tech companies’ dominance in generative AI, to worried about economic overheating and sticky inflation. And more recently, they have grown concerned about a “stagflation” scenario of slowing growth and rising price pressures, tied to rapidly changing policy from Washington, D.C. around tariffs and federal deficits.
Markets reflect this anxiety. As of late last week, the S&P 500 was trading down more than 6% from its peak on Feb. 19 and was down nearly 2% for the year. The 10-year Treasury yield had fallen below 4.3% from above 4.8% in mid-January, while the U.S. dollar weakened roughly 6% from its recent high relative to other global currencies.
Against this backdrop, is it time for investors to “buy the dip” and return to the trades that worked so well during the market’s recent bull run? Morgan Stanley’s Global Investment Committee does not endorse that approach, but we do see some opportunities for investors elsewhere, especially in the “soft landing” scenario of slower-but-steady economic growth and receding inflation that we anticipate. Here are three to consider..
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1Favoring financials:
Recent tariff-related fears have spurred a selloff in economically sensitive “cyclical” stocks, such as financial services companies, as investors favor defensive sectors. We believe this creates a value-oriented opportunity in financials, which are cheaply priced relative to their history. Wall Street analysts are boosting their earnings estimates for the sector and forecasting superior earnings growth in 2025. Also, financials may be among the biggest beneficiaries of a deregulatory agenda, which could help spur mergers and acquisitions. Already, there are signs of a revival in deal activity and a pickup in commercial and industrial lending. Financials also have the potential for cost cutting and productivity gains to buffer pressures on net-interest margins.
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2Taking profits in long-duration bonds:
The recent bond rally has featured a compression in the “term premium,” an underlying component of yields that reflects the additional returns investors would typically demand for risks associated with an uncertain policy outlook. It is hard to remember a time in the past 30 years when demanding this premium was more important. Consider not only the rapid pace of policy changes coming from Washington but also that the U.S. government’s unsustainable debt and deficits are likely to continue growing. Yet, the current lower term premium doesn’t seem to fully reflect these risks. In addition, bonds tend to struggle with stagflation, which is a rising possibility in the near term. Considering these factors, long-duration bonds may not offer investors sufficient compensation. We think there may be an opportunity now to sell these assets at a potential gain.
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3Adding non-U.S. equity exposure:
The U.S. dollar has recently weakened, as positive economic catalysts outside of the U.S. are burgeoning. Structural fiscal reform in Europe will likely lead to an acceleration in spending and investment, while a stimulus plan for China seems to be emerging. At the same time, a weaker U.S. dollar may increase potential returns on foreign investments, as stronger foreign currencies translate to more U.S. dollars when converted back. Investors may be rewarded for adding exposure to cheap non-U.S. equities that stand to gain from such catalysts and currency dynamics.
What Should Investors Do Next?
U.S. markets are adjusting to changes in policy and tech leadership, while the entire world is adapting to “Trump 2.0.” The question for many investors might be: Are the recent market drawdowns a buying opportunity? We believe the answer is yes, but not in the leading investments of the recent bull run, such as passive indexes that benefited from the rapid growth of U.S tech stocks. Stock picking is key.
Instead, consider being opportunistic in the recent market turbulence by adding some cyclicals like financials and domestic manufacturers, including mid-cap stocks.
Additionally, look to diversify regionally across emerging markets, Japan and select areas in Europe, taking advantage of the shifting momentum outside the U.S. and funding from long-duration rates.
Información extraída de: https://www.larepublica.co/opinion/editorial/hacer-empresa-antidoto-eficaz-contra-la-pobreza-4078293
