logo

Markets seesaw as political drama heats up — Six experts weigh in

VIDEO4:0904:09
Stocks rose on US-China trade hopes, but fell following Trump's speech

Stocks seesawed on Tuesday as President Donald Trump addressed the U.S.-China trade war and Democrats edged closer to impeachment proceedings.

Markets headed south, reeling in last week's positive investor sentiment, following Trump's address at the U.N. general assembly.

"We can reach an agreement that will be beneficial for both countries. But as I have made very clear I will not accept a bad deal for the American people," Trump said.

Markets also were put on edge on reports House Speaker Nancy Pelosi is close to announcing a formal impeachment inquiry into Trump.

Here's what six experts are watching now.

Seema Shah, investment strategist at Principal Global Investors, recommends that investors stay the course, keeping their investments in the market.

"The key thing to consider is that as long as you don't see the recession as your main scenario for next year, then I think you should actually stay invested. The aim is to focus yourself on really quality assets, you're looking at a higher quality. So, within credit, that's investment grade over high yield. I think there is some space for cyclicals because as we said, if we think that there is a trough coming, you need to have some exposure to some of those cyclicals — some of the industrials, for example. On the defensive side we like REITs because I think even in a low growth, low inflation, [low] interest rate environment, we should outperform."

Jason Pride, chief investment officer of private wealth at The Glenmede Trust Company, says that a recession is not guaranteed, though a defensive position is still best.

"This is an ongoing expansion, we see 25% chance of recession within the next 12 months. That's well below 50%. Still, we are late cycle, there are some risks of a recession. But we want to be positioned with equities on a go-forward basis. So, if you're going to be doing that you have to find ways to be defensive."

Oksana Aronov, managing director at J.P. Morgan Asset Management, says the consumer is still king in this environment.

"You're seeing the limits of central bank power, and I think this means investors have to really redefine what safe havens mean in this part of the cycle. ... We are in a bond bubble, no question about it. The question is, how long does it last? And how does it unwind? We don't really see how it can unwind painlessly, because the market is very rich, it is very highly correlated, and it is riding on a very tenuous liquidity cushion. So, in this part of the cycle, the consumer still looks okay. That's something we're watching very closely because a lot of the strength of the U.S. economy continues to ride on that. So, in terms of actual kind of positioning and portfolios, we think that's a good place to align yourself."

Dan Suzuki, portfolio strategist at Richard Bernstein Advisors, says defensive sectors, gold and bonds have been agents for slow and steady gains, and investors should maintain those positions and take risks off the table.

"If you look at the market in the last 20 months, it's gone nowhere. If you look at the performance, it's been all dominated by gold, bonds and the more defensive sectors. Investors need to be taking their foot off the gas pedal, taking a little bit of risk off the table and continuing to focus on the more defensive sectors. Now, when we tell people that they should buy defensive, the first thing that they say is defenses are expensive, but I think that that's a little bit of a misnomer. I mean, there's really three reasons why the defensive sectors are looking a bit expensive. One, they're more correlated with rates, so rates are near all-time lows. ... Utilities and real estate actually look on the healthier side on the cheaper side. Secondly, look at the fundamentals. If you look at the fundamentals for the cyclical sectors, they're the ones that are posting a negative earnings growth. ... And then lastly, you can't really compare defenses versus cyclicals, because cyclicals actually tend to look cheap when their earnings are peaking. You should be selling them."

Chris Whalen, investment banker with Whalen Global Advisors, says that the Fed missed a critical sign over the summer.

"The markets aren't fragile. They're illiquid. And the Fed should have seen this all year when we had tightness in the middle of ... June. That tells you that there's not enough cash for the market to clear. ... August is supposed to be a snoozer. And we had tightness in the second and third week in August."

Chris Hyzy, chief investment officer at Bank of America Corporation, says we are feeling an expansion in small waves.

"We actually think we're in the fourth mini-wave of this little expansion that should have taken place over the summer but was stalled by the fact that the Fed was too tight, liquidity was too tight, etc. ... This whole rotation that's going on, we get these episodes, these one-, two-, three-week episodes, this rotation from ultra-defensive, the herd going into either momentum or ultra-defensive areas, yield proxies and equities, seems to have legs to it rotating into the more value. As we go into next year, sure there are worries. ... Geopolitically, there are worries everywhere."

Disclaimer