Parts of the cyclical trade could be prime for a comeback, says Wilmington Trust's Meghan Shue.
With stocks closing at all-time highs after a record-making week, the narrow leadership from growth stocks may be an indicator of what's to come, the firm's head of investment strategy told CNBC's "Trading Nation" on Friday.
"A lot of commentators and strategists will point to this as a risk, and there are risks around that narrow leadership, but it also presents an opportunity," the $114 billion money manager said.
With the economy slowly reopening and several possible coronavirus vaccines on the horizon, "we would expect to see some rotation into more cyclically oriented stocks," Shue said.
But investors should be mindful of where they choose to put their money, she said.
"When it comes to growth versus value, ... value has not really had the conditions in place to outperform," the strategist said.
Industrial automation, medical devices, off-price retail and some of the bigger money-center banks are on her list of opportunities in the industrial, health care, consumer discretionary and financial sectors, Shue said in an email to CNBC.
"They tend to do better with higher interest rates, a steeper yield curve, better-than-expected economic growth, so, we wouldn't be surprised to see periods of outperformance from value," she said. "But to go all in on value expecting a sustained period of outperformance is not something we see as likely. Instead, we'd be a little bit more selective within the cyclical space."
As of now, the three biggest risks to the stock market's rapid recovery rally are reopening obstacles, a pickup in small business bankruptcies and a possible corporate tax increase resulting from a Democratic sweep in the November elections, Shue said.
"We wouldn't be overly defensive in this market, but we are cautious," she said.
"We see some really interesting dual optionality with gold," Shue said. "We've had a really rapid run in the equity market. If we did see a little bit of risk being taken off the table by investors, we would expect gold to do well. But it also can do well in ... a really rapid recovery."
Better-than-expected growth and faster-than-expected inflation can also be key catalysts for gold, the strategist said.
"It really is a tail risk hedge, not just a downside risk hedge," she said.