JPMorgan: How to play stock-price decoupling from fundamentals
Stock prices are falling while earnings are growing in a number of sectors as overall market volatility turns investor segment negative, JPMorgan Private Bank's Steven Rees said Wednesday.
That gap is creating an opportunity for long-term investment, according to the global head of equity strategy.
"I think what we see is a lot of decoupling between parts of the market where the fundamentals have actually been quite strong, looking at the more domestic sectors like consumer discretionary and health care," Rees told CNBC's "Squawk Box."
The S&P 500 consumer discretionary and health care sectors are down about 9 percent this year, despite delivering positive earnings growth, he said.
"I think that's the opportunity, to find these opportunities where we've seen the decoupling between the good parts and the bad parts," Rees said.
JPMorgan Private Bank said in a recent note that it has become much more selective within the U.S. market, as it sees the ending the year flat to up a modest 1 percent.
Still, Rees said he prefers the U.S. markets because that is where the growth is visible.
The bank counts large cap growth stocks in the technology sector as one of its preferred investments. It also says financials are oversold and look attractive in the long term, but a recovery ultimately depends on Federal Reserve action on interest rates.
Persistently low interest rates and uncertainty about how many times the Fed will raise them this year are just two of the headwinds financials face. Higher interest rates benefit banks.
Low rates are making dividend-paying stocks look like a good buy, Rees said.
"Growth companies with 3 to 4 percent yields in the domestic sectors look very attractive," he said. "A lot of people were negative on dividend yields this year because they thought rates were going to rise. That hasn't happened."
Despite pressure on shareholder payouts in the energy sector, about 60 percent of S&P 500 companies still boast dividend yields above the 10-year Treasury yield, said Wells Fargo Investment Institute president Darrell Cronk.
Investors can still find dividends of 3 to 4.5 percent in sectors like industrials, consumer staples and consumer discretionary, he told "Squawk Box" on Wednesday. Those dividend levels are likely safe for the time being, he added.
"You're talking about core segments that have lots of cash on the balance sheet, decent earnings growth, a fair multiple. So I think, yes, it's attractive right now," he said.