After the S&P 500’s record run, UBS says look here for the next stock winners – MarketWatch

A red flag from the Federal Reserve is jarring investors a little, in a week that has delivered milestones for stocks.

Global stocks slipped after the Fed released the minutes of its latest policy meeting late on Wednesday. “In summary, the minutes described a weakened economy on uncertain footing with few viable policy options at this juncture,” Michael O’Rourke, chief market strategist at JonesTrading, told clients.

Rattling investors in particular was the view that the Fed appeared to take one option — yield curve control — off the table. Under that policy, the central bank would commit to buying bonds if a specific yield was breached. The idea that the Fed will keep buying big assets can help shore up stock prices, hence some disappointment is showing up this morning.

Or maybe those record runs for the S&P 500
US:SPX
and the Nasdaq Composite
US:COMP
have inspired some to take cash off the table. Our call of the day from a team of strategists led by Mark Haefele, chief investment officer for UBS Global Wealth Management, says don’t fear that circa 51% rally for the S&P 500 since the post-COVID-low in March.

“We see the equity rally as driven primarily by central bank policies of adding unprecedented liquidity to markets through renewed quantitative easing and ultralow rates,” says Haefele, who expects central banks to stay in “stimulus mode for the foreseeable future” — supportive for stocks and other perceived riskier assets. But investors will need to think harder about where to invest.

He expects the “most attractive returns in the next phase of the recovery to be in portions of the market that have lagged behind so far.” That means investors with hefty exposure to equities that have been driving big gains lately, such as big U.S. technology names — Facebook
US:FB,
Apple
US:AAPL,
Amazon
US:AMZN,
Microsoft
US:MSFT,
Netflix
US:NFLX
and Google’s parent Alphabet
US:GOOGL
— may want to “rebalance into other opportunities.

“We see particular upside for companies involved in 5G and other enabling technologies. In addition, as the global recovery gradually takes hold, the next leg up in the market may be driven by cheaper sectors that have trailed behind in the rebound, such as cyclical and value stocks,” Haefele tells clients in a note.

And he sees U.S. midcap stocks as “poised to regain lost ground as the economic recovery gains traction and broadens out.” Smaller companies tend to perform better in a recovery as they are more cyclical.

Looking at the measure of midcap stock performance, the SPDR S&P 500 ETF trust
US:SPY
is up about 4.7% year to date against a 6% drop for the SPDR S&P Midcap-400 ETF Trust
US:MDY.

As ETF.com points out, midcap stocks led a market recovery after the 1997 Asian financial crisis, the 2000 dot-com bubble, and the 2008-09 financial crisis.

The market

Dow
US:YM00,
S&P
US:ES00
and Nasdaq
US:NQ00
futures are under pressure, with losses for European
XX:SXXP
and Asian markets. Gold
US:GC00
is sliding and the dollar
US:DXY
is up.

The chart

Time to love Europe stocks a little less?

The buzz

Disappointing forecasts, weekly jobless claims moved back above the 1 million mark, while the Philadelphia Federal Reserve regional manufacturing index declined. Leading economic indicators are due later.

Shares of China’s e-commerce giant Alibaba
US:BABA
are sliding after results

Shares of Intel
US:INTC
are climbing after the chip maker announced plans for a hefty stock buyback. Shares of rival Nvidia are slipping even after record revenue.

Unfathomable a few months ago, home-rental company Airbnb is planning an initial public offering.

Makeup giant Estee Lauder
US:EL
will lay off up to 2,000 after posting a loss.

A China official says recently postponed trade talks are back on.

Sen. Kamala Harris officially accepted the Democratic Party’s nomination for vice president at the its virtual convention, where former President Barack Obama slammed the current administration.

Random reads

Russian opposition leader Alexei Navalny is in a coma after drinking suspected poisoned tea.

Germany is cracking down on lazy dog owners.

Central banks are here to make you happy. Mission accomplished.

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