JPMorgan's Stephen Parker said investors have been too concerned about the timing of the Fed rate hike and too worried about the impact.
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"We think the growth dynamic, while muted, is on a positive track," said Parker, U.S. head of multi-asset strategies for global access portfolios at J.P. Morgan Private Bank. "It's like being in a doctor's office, waiting for a shot, and I think the anxiety you feel, the anticipation of getting a shot, is a little worse than the shot itself. I think once we can get through this first rate hike and realize it's not a major change to the fundamentals of the economy, we're talking about going from all time lows in rates to almost lows."
Parker said equities is his favorite asset class, and the recent selloff has created a buying opportunity, but the U.S. market is a bit pricy. Sectors he prefers in the U.S. market are consumer discretionary, banks, health care and technology. As the Fed rate hike cycle begins, he is looking more at developed markets overseas for opportunities, where central bankers are still moving toward easy policies.
"When we're thinking about how we build a portfolio, the thinking is evolving. There are two drivers we are looking for—that's markets that have policy tailwinds and for markets where we think earnings growth is going to deliver," he said. Europe and Japan fit that criteria. Emerging markets are still too iffy, but he is watching them for opportunities since they are reaching extremes.
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Grohowski said as the rate hiking cycle gets underway, the traditional rules of balancing stocks versus bonds may no longer work. In its fully diversified growth with income model portfolio, BNY currently has 27.8 percent fixed income, 47 percent equities and the rest in diversifiers, such as real estate and commodities. In its growth with income portfolio, it recommends about 64 percent stocks, 30 percent bonds and about 6 percent diversifiers.