An environment where rates are expected to go up rapidly warrants investing in “financials”, says Wells Fargo Advisors’ Mark Smith.
Smith’s comments on CNBC’s ‘The Exchange’
His remarks follow a further climb in the U.S. CPI to 8.5% in March that had James Bullard (President of the Federal Reserve Bank of St. Louis) suggest the central bank shouldn’t rule out a 75 bps increase in interest rate. On CNBC’s “The Exchange”, Smith said:
Financials is the only sector that benefits heavily from rising rates. If 75 bps as Bullard suggested comes true, financials will be the biggest beneficiary. These haven’t had huge run-ups like tech either so valuation is also great.
Bullard wants the Fed to move quickly in lifting rates to roughly 3.5% in 2022. The S&P 500 index is still down 7.0% versus the start of the year.
What to expect from U.S. equities moving forward?
ERShares’ Eva Ados doesn’t expect inflation to come down anytime soon either. She expects the U.S. equities to remain choppy this year due to the Fed tightening. On the same CNBC interview, Ados noted:
Estimates for H1 have been reassessed down. Analysts will start reassessing estimates for H2, and maybe the beginning of 2023 will also get reassessed. We’ll see another vertical shift up of the yield curve that’ll better illustrate the reality with inflation.
She sees healthcare as a suitable pick for such an environment and sees it as a space where consumers can’t cut back much on spending. Ados likes ResMed and Exelixis stocks in particular.
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