Where Are the Opportunities in This Market?
Last week we hosted two CIOs on our “Behind the Markets” podcast to see how they and their clients are reacting to the recent spike in volatility.
Our first guest was Manish Singh, CIO of Crossbridge Capital, a $4 billion wealth manager based in London. Singh utilizes a top-down macro approach to allocate capital, picking stocks for the U.S. and Europe, and ETFs or structured notes for exposures elsewhere.
Our second guest was Dave Donabedian, CIO of CIBC Private Wealth Management.
Is the Bond Trade Getting Close to an End?
Singh had expected the U.S. 10-Year Treasury yield to approach 0.5% or slightly below over the medium term, but he was surprised by how quickly rates dropped recently. He thinks there will be large fiscal measures (even overreaction) coming and so rates may be getting close to their bottoms.
While Europe moves slow, Singh even sees a loosening of the fiscal growth and stability pact, perhaps moving the limits 1%–2% of gross domestic product (GDP), which can allow more fiscal support. Singh sees very targeted needs in the health care sector, as hospitals are being completely overrun by the coronavirus.
Is There an Opportunity for Gains 12 Months Out?
Singh tweeted out last week: “panicking with the crowd usually does not pay. Over the last 25 years, every single time the NYSEDOV [a measure of down volume on the NYSE] has hit 80%, the market has finished higher in the next 12 months. Shorts be careful of the fiscal truck round the bend, don’t get run over.” Singh’s chart on this can be found here.
Singh believes that fear over the virus’ potential impact will create fiscal and monetary overreactions to provide support, similar to what happened in 1998—and seven months later the Federal Reserve (Fed) was hiking rates. He sees that happening again, following the virus crisis response that’s being dialed up now.
Clients on Both “Buy the Dip” and “Panic Mode” Extremes
Donabedian’s team has seen both types of clients calling: those who see the market moves as an overreaction and want to put some fresh cash to work, and those who feel very unsteady about what is going on. Donabedian is cautioning clients on both extremes. He sees the market valuations having improved with the drop but not being at absolute bargain levels just yet.
Donabedian is skeptical of the “bond substitute stocks”—the consumer staples, utilities and REIT names. He thinks these stocks are priced quite rich relative to their growth prospects. He also generally does not like the idea of “looking for a place to hide” within equities. If people want to hide out in equity risk, he thinks they should just take on less equity risk. Donabedian rather looks for value and growth at a reasonable price, and he still sees opportunity in technology, health care and financials.
Please listen to the full conversation below.