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JPM's DiCenso Sees Stocks Returning 6%-7% Next 12 Months

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Bloomberg Aug 1, 2023 22:59 · 12.9k Views

"Don't be scared of this rally. Just be a little more selective," Monica DiCenso, JPMorgan Private Bank's head of global investment opportunities, advises while explaining why she upgraded her outlook for US stocks and where she's finding opportunities with Jonathan Ferro on "Bloomberg The Open."

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Transcript

  • 00:00 Monica recently upgrading her outlook on the equity market.
  • 00:03 Monica, let's start with that outlook.
  • 00:05 What's it driven by and what's the number now
  • 00:09 you know it's driven by quite frankly fundamentals for the US economy that never turned out to be as bad as people thought when they came into the year.
  • 00:16 And so we were bullish equities at the beginning of the year, thought we'd get to 4546 hundred by year end.
  • 00:21 Obviously we got there a bit faster than expected.
  • 00:24 And so when we looked at our outlook again and re underwrote our thesis, we said hey, this is a market that
  • 00:30 is stronger than we thought
  • 00:31 and it looks like
  • 00:32 quite frankly view as
  • 00:33 consumers stronger than we thought.
  • 00:35 And when you add that up with reasonable valuations broadly speaking you can see a scenario where equities can still return six, 7% over the next 12 months.
  • 00:42 So the numbers I'm looking at 4800 to 4900 perhaps by the middle of next year.
  • 00:47 Monica, when you think about the opportunities do they lie at the market cap index S&P 500 or elsewhere?
  • 00:55 Yeah, I do think this is an interesting set up for equities because you for the first time in many years have the opportunity to look beyond big tech.
  • 01:03 By the way, I still think tech looks fine.
  • 01:04 You still want that growth in your portfolio.
  • 01:06 But for too long people relied probably too much on a few sectors.
  • 01:10 And now we actually look at this rally and it was very disproportionate and it's time to look under the hood of the S&P and figure out where is their value, where are their secular opportunities.
  • 01:19 I think you know you saw from Caterpillar this morning, industrials could be a place that look a little more interesting and in fact when you out those large cap tech names you find cheaper valuations versus historical levels.
  • 01:29 So
  • 01:30 I do think it's time to return to fundamentals.
  • 01:32 If you will
  • 01:32 look at valuations and look across sectors rather than being heavily leveraged in just one or two parts of the market.
  • 01:37 Well, let's talk more about sectors.
  • 01:39 Our performance in July, the banks up 10%,
  • 01:42 let's talk about size, small caps up 6% on the Russell versus the S&P up something like
  • 01:47 3%.
  • 01:47 Monica, can we start with the banks?
  • 01:49 Do you see reason for that bank rally to continue?
  • 01:53 I I think you saw that rally obviously coming out of what happened with the regional bank crisis earlier this year.
  • 01:58 You saw
  • 01:59 everyone just sell down bank exposure broadly.
  • 02:01 And at the end of the day, there still are opportunities you want to be selective with the regionals because there are some that have balance sheets maybe that are less strong or have more commercial real estate exposure.
  • 02:10 But broadly speaking, when I look at some of the larger banks, they still look fundamentally fairly strong
  • 02:15 and that's what the equity side.
  • 02:17 And we also look at things like bank preferreds, which sold off very meaningfully and can be a really interesting way to get yield within a balanced portfolio.
  • 02:24 Today, I noticed that you've dialled back your view on Europe, just relatively speaking to the United States.
  • 02:29 Monica, can you walk us through that?
  • 02:32 Yeah,
  • 02:32 it's actually a quite similar story to the US We called for Europe performance at the beginning of the year.
  • 02:37 That happened especially when you think about in dollar terms, helped by good fundamentals as well as obviously a strengthening euro.
  • 02:43 So today when we look at it,
  • 02:45 I just think it looks more balanced like the USI think there are pockets of opportunity.
  • 02:49 I look at the energy sector for example,
  • 02:51 you still have many names that are trading at deep discounts to their US counterparts.
  • 02:55 And so I think it's just about being selected in sectors and stocks rather than owning the broad market as your only way to get market exposure in Europe.
  • 03:03 So Monica, two things, you've picked out energy potentially out of Europe, industrials potentially out of the United States.
  • 03:09 How much
  • 03:10 exposure cyclically you taking at a time when some people think eventually this recession is going to bite and it's a mistake to extrapolate out the recent resilience through next year?
  • 03:20 There is no doubt that after this equity rally we've seen
  • 03:23 we don't want to be
  • 03:25 too levered to any one part of the market.
  • 03:26 I I think when I look at what the market is giving us today and that's how I think about where to add exposure,
  • 03:30 I see disproportionate rally, right some sectors driving a lot of the outperformance.
  • 03:34 I see high rates
  • 03:36 and I see low volatility.
  • 03:37 And so I look at those three parts to think about cobbling together interesting returns over the next year.
  • 03:42 I think equities will give you positive returns,
  • 03:44 but do not ignore fixed income and the fact that you can get very similar returns with maybe different risk thinking about parts of the fixed income world.
  • 03:51 And so I like to have that that balance
  • 03:54 and over the next six months, we may very well see volatility.
  • 03:57 You may get chances to lean in a little more heavily broadly to equities.
  • 04:00 But I think my message here is
  • 04:02 don't be scared of this rally, just be a little more selective.
  • 04:05 Well, let's wrap it up.
  • 04:05 Let's just finish in fixed income.
  • 04:07 How selective are you being wearing fixed income?
  • 04:09 What pockets do you like?
  • 04:10 What don't you like?
  • 04:12 Yeah,
  • 04:13 very clear in public markets you're not getting paid in high yield.
  • 04:16 What I would want to get paid to take that risk so you can be more conservative.
  • 04:19 I mean we work with a lot of US investors munis investment grade on the public side you're still making that mid single digit return
  • 04:26 that makes sense.
  • 04:27 I I mentioned bank preferred again selectively you can get even better returns, tax equivalent and and then of course in the private side there are opportunities in private credit.
  • 04:36 But we know lending is going to be tougher and you're going to see some credit constraints moving into the back half of the year and next year.
  • 04:43 So again, it's about being selective, although in private credit you can get those double digit returns by looking at the right kind of investments and we just focus on making sure you're looking at companies that have reasonable leverage and a good runway for growth.