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JPMorgan's Aliaga Sees 'Robust' Outlook for Financials

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Bloomberg Nov 18 20:29 · 14.2k Views

Stephanie Aliaga, JPMorgan Asset Management global market strategist, discusses her forecast for US stocks going into 2025.

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Transcript

  • 00:00 All right, look, we got to get right to it.
  • 00:01 I mean, we're sitting, what, roughly 5859 hundred on the S&P 500,
  • 00:06 higher than where a lot of folks thought we were going to end the year.
  • 00:08 And I know we still got
  • 00:09 a month and a half to go here, but everyone's already looking out to 2025.
  • 00:12 Have you actually taken a look at 2025?
  • 00:15 Are you ready to make a forecast?
  • 00:16 Yeah, We've been hard at work on our year ahead investment outlook.
  • 00:19 And
  • 00:19 I think for us, it seems like the economy has now emerged from the kind of cyclical storm of uncertainties.
  • 00:25 You know, we're firmly in a soft landing.
  • 00:27 Growth is resilient.
  • 00:29 Inflation's on it, it's way down to 2%, and the Fed is easing,
  • 00:32 But we are entering this kind of fog when it comes to uncertainty around policy, what this next administration will bring.
  • 00:39 I think for us, what we need to anchor ourselves around, it's just the direction of travel.
  • 00:43 And that remains very well intact that the economy continues to grow,
  • 00:47 earnings growth is broadening out, and there are many other areas of the markets that can now perform better in the year ahead.
  • 00:52 And we're not only relying on just seven companies in the index.
  • 00:55 Well, let's talk about that because that really was the market story at least for the 1st 6 to 8 months of the year.
  • 01:00 We've seen a bit of broadening since then, not quite as much as some people would think.
  • 01:04 What do you think is going to be the leadership for this market over the next 12 months?
  • 01:08 What sectors?
  • 01:09 I think tech will remain intact, but they're going to continue to kind of
  • 01:14 come to head with these
  • 01:16 this attention or monetization.
  • 01:18 So I think that the fact that expectations are so much are so
  • 01:22 are elevated for those companies
  • 01:24 could potentially lead them to lag, particularly relative to the last two years of performance.
  • 01:29 But what we're most excited about, it's just that other areas of the markets now seem to have
  • 01:33 the tailwinds behind them.
  • 01:35 So you just have growth in resilient interest rates coming down.
  • 01:38 We we're expecting them to come down a bit more, particularly on longer term rates, but that's helping other areas of the markets, particularly value
  • 01:44 And then also some tailwinds from,
  • 01:46 you know, the election impacts, you know, deregulation and tax cuts, which will also help other areas the markets perform.
  • 01:51 So is that a financials call?
  • 01:53 Because it feels like that's more of the consensus, like the way to play that whole theme.
  • 01:56 You just said financials.
  • 01:58 The outlook for financials does seem to be
  • 02:00 robust or at least better than last year.
  • 02:02 I think on the regulation front, similar to many of the things on the
  • 02:06 that are being talked about from this next administration, we don't know yet what deregulation actually looks like and we don't know what the magnitude of that is.
  • 02:13 And particularly in in financials where it's a very differentiated landscape, there's a lot of, you know, smaller regional banks, does lower regulation actually help competition amongst them?
  • 02:21 And so there's a lot of questions you don't need to answer, but it does seem like that the outlook there is looking a bit better.
  • 02:26 Does that extend to say small caps and mid caps also?
  • 02:30 It does I think that earnings growth particularly there that that
  • 02:33 is expected to be quite robust next year.
  • 02:35 And, you know, earnings there was really in the doldrums for the last two years, particularly relative to large cap tech.
  • 02:43 But
  • 02:44 so we do think we do think that small midcap have more room to perform here and particularly because their valuations just haven't
  • 02:51 risen as much as large cap tech either.
  • 02:52 So there's, you know, more room for upside.
  • 02:54 Is there a case to be made at all for
  • 02:56 US investors to actually look outside the US?
  • 02:59 There's been a lot of talk about American exceptionalism when it comes to financial markets, particularly in light
  • 03:04 of the administration that's going to be coming into power that most people seem to believe is going to be very market friendly
  • 03:10 over the long term.
  • 03:11 We think there is a lot of growth happening globally, not just in the United States and particularly where expectations are much lower and perhaps the the upside is, is, is elevated and there's really exciting structural themes, particularly in Japan and in India.
  • 03:24 In the near term.
  • 03:25 I think, you know, we, we had expected the dollar to
  • 03:28 weaken next year and now it seems like the dollar will be biased higher with the balance of policy and, and US growth and this theme around US exceptionalism.
  • 03:36 So in terms of just beta exposure, the rest of the world seems a little bit more challenged than we initially thought.
  • 03:42 But with that said,
  • 03:43 underneath the hood, we do think there's a lot of opportunity, particularly in some of these secular themes like
  • 03:49 AI, technology, healthcare.
  • 03:50 When you sort of look
  • 03:52 ahead into 2025 and particularly through the lens of what government policy is going to be like,
  • 03:57 are you going to pay more attention to the White House or more attention and more attention
  • 04:02 to the Fed and Jay Powell?
  • 04:04 Interesting question.
  • 04:04 Interesting question.
  • 04:06 For the last two years, we've really only looked at at the Fed, right?
  • 04:09 Monetary policy has been squarely in focus, and now investors have to
  • 04:13 really take issue with the direction of fiscal policy.
  • 04:17 It seems like monetary policy in the year ahead will be gradual.
  • 04:21 the Fed is lowering interest rates.
  • 04:22 There's a lot of questions around where the neutral rate is.
  • 04:25 Maybe it's more elevated relative to history.
  • 04:28 But the uncertainty there seems a bit more muted relative to the past, particularly because now inflation is back to 2%.
  • 04:35 So it seems like fiscal policy and the focus around there will very much be in the driver's seat
  • 04:40 for the next year.
  • 04:41 So how do you then diversify?
  • 04:43 Do you go into treasury market in the long end?
  • 04:45 If we're sitting around 4 1/2, is it going to be crypto, Is it going to be gold?
  • 04:49 Where's a good diversifier for you guys?
  • 04:51 I think first you have to see what your where your exposure is and for most investors that are sitting on portfolios that have enjoyed the last two years of incredible performance.
  • 05:01 Chances are you're of an overexposure and overweight to large cap tech companies in particular just a few companies.
  • 05:07 So I think diversification takes many different forms
  • 05:10 and flavors and it obviously depends on your on your own needs.
  • 05:12 But I think you can look to diversify within equity markets now that other areas of the markets are set to perform better,
  • 05:18 diversify into
  • 05:19 fixed income,
  • 05:21 you know, various parts of the curve.
  • 05:22 I think you know, long term rates will remain pressured given the current macro backdrop.
  • 05:26 But there are, there are, you know, that diversification
  • 05:28 offering there.
  • 05:29 And then also, you know, private markets and
  • 05:32 and even other I think
  • 05:33 you know, real assets that that can help, you know, buffer portfolios, right.