Portfolio Watch: Don’t turn away from value stocks just yet, says UBS
• UBS writes that despite the recent rally in the S&P 500, it may not be time to shift away from a value orientation in picking equities. In a weekly update it tells investors that while “growth stocks have rallied sharply” from mid-June lows, “lingering uncertainty around inflation” and Fed moves “point toward further outperformance for value stocks.”
• Meanwhile, Mechanics Bank Wealth Management sees the stock market rebound as problematic for the Fed, which is counting on rising rates to slow the economy, not increase bets on a successful soft landing. “The potential case for recession seems weaker as the market seems to be looking ahead to a post-inflation environment,” it tells clients. A recent small decline in jobless claims is evidence that the economy is holding up, adding that these are “numbers we wouldn’t be seeing in the middle of a recession.”
• Carl Tannenbaum at Northern Trust echoes the view that “investors are responding as if inflation has peaked and lower rates are on the horizon.” One reason for the economy’s resilience is the strength of balance sheets, which are “arguably in better shape than they have been for many years.” For the S&P 500 that meant a peak of $2 trillion in cash at the end of 2021. Households were helped by direct payments, child tax credits and home mortgage refinancing, he writes.