Market moving ‘one step forward and two steps back’ amid headwinds: Strategist

JP Morgan Asset Management Global Market Strategist Meera Pandit joins Yahoo Finance Live to discuss the market outlook amid global challenges, how COVID lockdowns may affect China’s growth, and consumer strength.

Video Transcript

AKIKO FUJITA: All right, let’s bring in our next guest. We’ve got JP Morgan Asset Management global market strategist, Meera Pandit. Meera, let’s pull back just a bit here to look at where we are, another day of significant declines. We saw a bit of a bounceback yesterday, but are you buying into this kind of environment?

MEERA PANDIT: The market is still dealing with a number of different headwinds in this environment, anything from the war in Russia and Ukraine, which continues to strain commodity prices, and consumer spending, the backdrop of the aggressive Fed, and then most recently, this China COVID lockdown. All of these things are impacting sentiment and creating some real headwinds for markets.

I will say that because valuations come down for investors who have certain stocks on their wish list, it’s time to reassess some of those positions and see if the entry point is favorable. In some cases, it will be. In some cases, we may not be there yet. But I do think that this is going to continue to be a market where we might have one step forward, two steps back in terms of absorbing some of the headlines that we’re seeing.

INES FERRE: Meera, Ines here. You talked about valuations and the resetting of those valuations. And we have seen that with names like Netflix. We saw that with a Meta earlier this year. So where do you see opportunities, or what sectors do you see opportunities? And is there more room for repricing in certain sectors more than others?

MEERA PANDIT: Some sectors still actually have reasonably in line with average valuations. We’re seeing a lot of the different sectors within the value spectrum, in particular, some of those more cyclical areas of the market still having favorable valuations relative to growth, and actually, pretty good earnings prospects as well. Certainly, energy is a notable example of that, but also materials, industrials. From an earnings standpoint, healthcare could be a real standout coming up.

So there are definitely opportunities out there from a valuation perspective. But I think that you bring up tech, and it’s a great example that no one industry or sector is a monolith, particularly because you saw these big tech names move in lockstep for basically two years. And now we’re seeing massive differentiation on the basis of profits. So profits are going to be a huge distinguishing factor as we go forth throughout the rest of the year in terms of some of those better opportunities for investors.

AKIKO FUJITA: Meera, on the issue of China and those lockdowns in Shanghai, now in Beijing, we haven’t seen the full extent of the impact at least show up in the data just yet. What’s your base case on how significant the pullback is likely to be, especially because of what’s played out in Shanghai, and what are the ripple effects you’re watching?

MEERA PANDIT: These lockdowns are quite severe when we compare them to the lockdowns that China experienced in early 2020, certainly when we compared them even to the lockdowns that the US experienced in early 2020. So it will be a challenge for Chinese growth, to say the least . While we are seeing some overtures from policymakers on fiscal and monetary stimulus, they’ve been more targeted in narrow measures thus far because, of course, the policymakers do still have the Yuan to think about in the context of the Fed tightening over here in theUS.

So it’s a really tricky balancing act. And when we think about that from a global context and how that feeds through to the rest of the global economy, we think about supply chains, of course, and the risk that it sets us back and prolonged some of the inflationary pressures that we ‘re experiencing.

Maybe the silver lining here, though, is what we’re seeing in the US from a consumer standpoint, is the consumer shifting back from goods to services, very apparent particularly in the earnings reports and travel, leisure, when we look across airlines, even some of the financial companies reporting activity in those areas of the market when it comes to spending. So that could slightly insulate the consumer from some of these challenges overseas. But it is undoubtedly a headwind in the Chinese markets that we don’t quite know the full extent of yet.

INES FERRE: And we’ve seen so much volatility in the markets across so many sectors. Even most recently, we saw this in the energy sector as well. Can investors still invest long-term? Or do they have to be more hands-on short-term? What type of strategy should be used in these types of markets?

MEERA PANDIT: There is so much uncertainty in these types of markets. And there’s not one obvious area of ​​the market to invest in. And I think that investors do need to be hands-on when it comes to stock selection and being active. Having that long-term mindset, being diversified within a portfolio, is really important in times like these when the market is not surfacing opportunities as clearly as it was in 2021. In an environment where there’s a mix of headwinds and tailwinds, a mix of risk and reward, investors really need to be balanced and have that long-term mindset.

I mean, if we think about some of the challenges that we’re facing today, geopolitics, the COVID surge in China, even the aggressive Fed, if we look towards the end of the year, hopefully, we should have some sort of more durable resolution when it comes to the conflict overseas. The COVID wave in China will eventually pass. And the Fed by the end of the year will have the bulk of its hiking cycle behind it. So we’re in a very dynamic environment for investors, in which having that long-term mindset is going to be really helpful in terms of sticking to that investment plan and navigating these choppy waters.

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