September Outlook: Volatility & Rate Hikes Plague Markets, Pros Weigh In
September has historically been a stormy month for the markets, and it seems like this year won’t be any different. Investors have a lot on their plate as they navigate through a volatile market and grapple with the uncertainty surrounding interest rate hikes, inflation, and key economic data. Experts are weighing in on what to expect and how investors can trade wisely during this challenging period.
The volatility seen in August is likely to continue, according to Richard Saperstein, chief investment officer at Treasury Partners. He believes that the market will price-in a slowdown in economic activity caused by the Federal Reserve’s rate hikes. Saperstein points out that the housing market will also be affected by new highs in mortgage rates. It’s clear that caution is warranted in these uncertain times.
Ben Kirby, portfolio manager at Thornburg Investment Management, advises investors not to take unnecessary risks at the moment. He believes that risk assets are expensively valued and warns of signs of a slowdown. It’s crucial to approach the market with caution and consider adjusting portfolios accordingly.
Carol Schleif, chief investment officer at BMO Family Office, emphasizes the importance of monitoring economic data as it could influence further rate hikes. While inflation and manufacturing activity are moderating, there are still some uncertainties, such as the impact of China’s slowing growth and weak European data. Although Schleif doesn’t anticipate immediate rate cuts, she cautions that more hikes may still be in the cards.
In the midst of all this uncertainty, George Ball, chairman of Sanders Morris Harris, remains optimistic. He believes that despite September’s historical storminess, the domestic economy’s resilience and positive earnings outlook argue for a different outcome this year. While others express caution, Ball’s perspective offers a glimmer of hope for investors.
When it comes to tech stocks, experts advise caution but not complete avoidance. Mega-cap tech stocks like Apple, Amazon, Alphabet (Google), Meta (Facebook), Microsoft, Nvidia, and Tesla have seen significant gains this year, but they are now richly valued. Schleif suggests trimming back on these stocks and diversifying portfolios with exposure to mid- and small-cap stocks that have lagged behind. However, it’s important to note that technology companies are still investing heavily in artificial intelligence, which could pay off in the long term.
Dave Sekera, chief U.S. market strategist at Morningstar, believes that not all tech stocks are overvalued. He sees opportunities in select companies like Uber, Autodesk, and Checkpoint Software. Meanwhile, Ball favors mid-cap tech companies such as MercadoLibre, Trade Desk, and Teladoc Health.
So, what should investors buy in this volatile market? Kirby recommends focusing on defensive areas of the stock market and adding international exposure. He identifies derivatives exchange CME as a promising stock that will benefit from increased volatility. On the other hand, Ball suggests looking for value and momentum in the hotel sector, expecting room prices to skyrocket. He recommends considering stocks like Hyatt Hotels, Host Hotels & Resorts, and Hilton Hotels. Additionally, Andrew Slimmon from Morgan Stanley Investment Management suggests three stocks to consider: Alphabet, United Rentals, and CRH, a building materials firm.
As we enter September, investors must carefully assess the market’s volatility and keep an eye on key economic indicators. While some remain cautious, others remain optimistic about the potential for positive outcomes. By diversifying portfolios, adjusting positions, and considering defensive plays and international exposure, investors can navigate the stormy waters ahead. It’s important to stay vigilant, monitor economic data, and make informed decisions based on a balanced view of the market.
