about 4 years ago • 2 mins
US brokerage and investment manager Charles Schwab refreshed its seasonal strategy on Thursday – with “improvement in the macroeconomic environment” yet rising risk elsewhere setting the stage for a few big sectoral shifts 🏋️♂️
Schwab – currently in the process of swallowing up erstwhile rival TD Ameritrade – has a few suggestions for how its clients' investments should look over the next three-to-six months.
Despite recent interest rate cuts and trade war de-escalation, the brokerage is concerned that both geopolitical risks and stock prices remain high – agreeing with private equity giant Blackstone that this creates the potential for more market volatility and “corrections” in 2020 📉
So what’s a Schwab to do? Well, breaking down stocks into sectors and taking into account the sensitivity of each to things like interest rates and the US dollar (Macroeconomic factors), their Value for money (relative to the past and to other sectors), their Fundamental profit-making efficiency, and the Relative Strength of stock-price growth momentum, Schwab arrives at the following suggestions:
As the chart shows, Schwab is advocating stock investors revisit their holdings in several sectors 👋
Financial stocks, meanwhile, get an even bigger thumbs-up. Improving economic conditions should, Schwab believes, allow banks to make more money by borrowing at lower short-term interest rates – and issuing more loans of their own at higher long-term rates. Furthermore, their valuations – while particularly vulnerable to sudden changes in investor sentiment – are currently low relative to US stocks overall.
It’s not all gravy, however. With global economic growth looking slow but steady, Schwab is turned off by the sensitive Materials and Utilities sectors.
Nevertheless, the firm ends with a reminder that it always pay to stay diversified. You never know just what might happen next… 🙃
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