The U.S. economy has transitioned from mid-cycle to late-cycle, says the Bank of America Securities’ Jill Carey Hall.
The transition would typically imply that the time for small caps to trump large caps is over. Interestingly, however, Hall still picks the former over the latter.
Why Hall picked small caps over large caps
On CNBC’s “Squawk Box”, Hall agreed that value stocks and small caps perform “less consistently” in the late-cycle but said the improving COVID situation still made them a great pick for the investors.
The pandemic has been a greater determinant of style and size rotations this year than macro. Now that things are getting better on the COVID front, we could still see small caps and value continue to work in the coming months.
The delta variant is being said to have peaked in the United States, and researchers aren’t expecting another notable surge this winter.
Hall advocates investing in inflation-insulated stocks
According to Hall, small caps are still “relatively cheaper”, indicating room for “healthy annualised returns” that made them a smart pick, particularly for long-term investors. She advocated investing in inflation-insulated sectors like energy and financials.
In an environment where rates are rising, you want to buy stocks that offer a healthy dividend and can grow that dividend as interest rates rise; sectors that are more insulated from inflation remaining high. So, areas like energy and financials we think look well-positioned.
Last week, Aureus Asset Management’s Karen Firestone picked a few stocks that she thought were somewhat immune to inflation.
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