Wall St Week Ahead: Investors rethink recession plays, boosting U.S. stock market laggards

Clara Resources Australia

11/06/2023 14:00

(Repeats with no changes)
    By David Randall
       NEW YORK, June 9 (Reuters) - A U.S. stocks rally is
showing signs of expanding beyond the cluster of giant growth
and tech names that have led gains this year, as investors
reposition portfolios primed for a widely expected recession.
    For months, investors piled into a handful of megacap
companies seen as safe bets in uncertain times, spurring a rally
that has lifted the S&P 500 nearly 12% year-to-date,
concentrated in a small group of stocks.
    As the U.S. economy holds up despite higher interest rates,
fears of an imminent downturn are fading. Some investors have
started dipping their toes into economically sensitive market
areas that have been out of favor this year including small
caps, energy shares and industrial stocks - all of which have
seen hefty rallies in June.
    "We're seeing indications that the economy is going to be
more resilient to headwinds," said Tim Murray, a capital market
strategist in T Rowe Price's multi-asset division. "There's
reason to believe that the pessimism we saw at the start of the
year is giving way to a stronger-than-expected market." 
    Murray has increased his allocation to small-cap stocks,
which tend to be among the most direct beneficiaries of economic
growth. The Russell 2000 small cap index of small cap companies
 .RUT  has surged 6.6% this month. The index is up 5.9%
year-to-date.
    Other rebounding segments in June include the S&P 500 energy
sector, which has gained 6% this month and S&P 500 industrials,
up 5.7%. Energy is down 7.6% year-to-date, while industrials
have risen nearly 4%.
    By contrast, the tech-heavy Nasdaq 100 has gained about 2%
this month - though the recent underperformance follows a nearly
33% year-to-date surge on excitement over developments in
artificial intelligence.    
        A broadening equity rally would be a welcome development
for many investors, who have worried about the market's narrow
leadership. Just seven stocks - Apple Inc  AAPL.O , Microsoft
Corp  MSFT.O , Alphabet Inc  GOOGL.O , Amazon.com Inc  AMZN.O ,
Nvidia Corp  NVDA.O , Meta Platforms Inc  META.O , and Tesla Inc
 TSLA.O  - have been responsible for almost all of the S&P 500's
gains this year, data from S&P Dow Jones Indices showed. 
    "This kind of dominance is unusual but you're starting to
see it turn around," said Howard Silverblatt, senior index
analyst at S&P Dow Jones Indices.  
    Ten of the 11 S&P 500 sectors are firmer for the month to
date, compared to only six for the year. An additional sign that
investors are looking further afield can be seen in the market's
breadth: the percentage of S&P 500 stocks trading above their
200-day moving average stood at nearly 54% on Friday, up from a
low of 38% in March. That is still off from the high of 76%
reached in February, however.
    Stronger-than-expected jobs growth and robust consumer
spending have been among the data points that have bolstered
investors' economic outlook.
    Among the firms revising recession forecasts were Goldman
Sachs, which in the past week cut its probability of a recession
in the next 12 months to 25% from 35%, while Nuveen's Chief
Investment Officer Saira Malik recently wrote that a "mild"
recession has likely been delayed from late 2023 to sometime in
2024.
    Investors in the coming week will be watching U.S. consumer
price data on Tuesday for signs that the Fed's rate hikes are
continuing to cool inflation without badly hurting growth. The
Fed concludes its two-day monetary policy meeting on Wednesday,
and while most market participants expect the U.S. central bank
to leave rates unchanged, many will also be gauging
policymakers' appetite for future tightening.
    Some market watchers believe it is too early for economic
optimism. Analysts at Capital Economics wrote on Thursday that
the small-caps rally was likely premature, saying they expected
softer growth in coming months. Jobless claims released on
Thursday were higher than expected, a sign that the labor market
could be cooling.
    Others, however, are more optimistic. Max Wasserman, senior
portfolio manager at Miramar Capital, has been increasing his
positions in underperforming consumer stocks such as Starbucks
Corp  SBUX.O  and Target Corp  TGT.N , respectively down around
1% and 15% year-to-date. He expects restaurants and retailers to
outperform as growth stabilizes in the second half of the year.
    "That's when we think we will be rewarded," he said. 
    
  

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 (Reporting by David Randall; Additional reporting Saqib Iqbal
Ahmed and Lewis Krauskopf; Editing by Ira Iosebashvili and
Richard Chang)
 ((David.Randall@thomsonreuters.com; 646-223-6607; Reuters
Messaging: david.randall.thomsonreuters.com@reuters.net))