CNBC Stock Blog

Q2 Strategy: Beware Bonds — Stick with These Stocks


Today marks the final day of the quarter for the Dow and the S&P. How should investors set up their portfolios for next quarter’s trading? John Ryding, chief economist at RDQ Economics, and Scott Wren, senior equity strategist at Wells Fargo Advisors, shared their insights.

Can Momentum Continue in Q2?

“It looks like the recovery is broadening out and I think we think we’re on the brink of starting to create some jobs, which will help support the consumer,” Ryding told CNBC.

“And we are seeing good recovery overseas, especially in Asia, so I think it’s one of improving recovery momentum where we transition away from restocking to more end-growth in final demand and I think it’s very good for the equity market and support the sectors that we mentioned.”

However, Ryding said bond investors need to be cautious in the upcoming quarter.

“I don’t think it’s going to be such a good quarter for bonds. I’m looking at a potentially significant back-up in bond yields in the second quarter on these recovery issues and also on further concerns about the fiscal outlook for the U.S.,” he said.

In the meantime, Wren said he recommends overweight positions in industrials and materials.

He is underweight defensive sectors like health care, staples and utilities.

“The types of companies that we’ve been talking about for quite a while and the types of companies we’ve been adding to are things like FedEx , Alcoa , US Steel , and ITW (Illinois Tool Works) ,” he suggested.

“That’s what’s been working for the last year and we think that’s going to continue to work as we come through this year and into 2011.”

This has been a very low volume rally, noted Wren. He said this type of pace is going to continue and a lot of retail investors who have missed the most of the rally is looking for a pullback.

“This year is going to be much more volatile,” he warned. “We’re not going to see the big progress in the markets we saw in 2009...Right now, everyone’s looking for the pullback so the chance of it happening quickly or right away is a little slim.”

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No immediate information was available for Ryding or Wren.