As economic growth slows, where are the opportunities?
Senior Equity Strategist Linda Duessel offers insights on what is likely to move the equity market in the months ahead and whether tariffs still pose a challenge. She also discusses where investors may find opportunity in this environment.
Published July 15 2019
I'm Linda Duessel, Senior Equity Strategist at Federated Investors.
As economic growth slows, where are opportunities for investors?
Well, there are two places to look for opportunities. First, as the economy slows, so do earnings slow down, and so that draws us to the growth category. Now, the growth category is dominated by tech stocks and healthcare stocks, particularly biotech stocks. And it's interesting because there's a big debate right now about when will value have its turn? Value should not really have its turn until the second half of this economic recession, actually, when we look to come out of the economic recession. So the growth regime carries on, and we like tech and we like healthcare. On the other side is the question of cyclicals versus defense. Late in an economic cycle, you know, you can't really be betting on cyclical sectors anymore. You need to look to the defensive areas, the defensive growth areas. Those are the areas that have your high quality dividends within it. And that is when they really shine is in the back half of the cycle.
Are tariffs still a major concern for the economy?
Tariffs will be not a concern particularly for the market as it's already priced into the tariffs that we have now. Truly, it has slowed down the economy, but what we need to worry about is an escalation of the tariff, the trade war really. And just recently Peter Navarro, who's an advisor to the President, has suggested that we're in a quiet period now for the talks between the United States and China. I would argue it's now time for the administration to look out. There's a political season coming up. Quiet period to me means they're kicking that can down the road. And for that respect, I think, there's nothing worse to look out for, at least not at the moment.
Views are as July 15, 2019 and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector. Federated Equity Management Company of Pennsylvania 19-20158 (7/19)