In a recent WealthTrack interview with Consuelo Mack, top-ranked portfolio strategist and co-founder of Cornerstone Macro Francois Trahan shared his insights on market trends and where investors should be focusing their attention.
Trahan argued that when leading market indicators start to “top out,” as they are currently, it presents a difficult backdrop for investors–although the environment still “feels great” in terms of GDP growth, employment, etc, investors begin to fear a downturn. He adds that earnings, while “spectacular,” don’t match performance, which adds to the confusion but is typical for this stage of the economic cycle.
The rise in interest rates over the last few years, Trahan explains, lets us know that the market has arrived at an inflection point (rather than a pullback on an uptrend). Rising rates, he says, have effectively “caught up” to leading economic indicators, creating an environment in which investors should focus on growth names.
When asked about the higher valuations of growth names, Trahan argued that while investors shouldn’t be “valuation agnostic”, price shouldn’t be the primary focus. Growth names are always more expensive than the more cyclical value names, argues Trahan, so investors should look at a company’s longer-term story. “Find stocks that are at levels you can live with,” he advises, citing tech, consumer discretionary and healthcare as the “growthiest” sectors.
Trahan isn’t concerned about a recession. “I really don’t think about it all that much,” he told Mack, noting that the underlying data doesn’t point to that type of scenario. “It takes a long time for a slowdown to occur,” he says.
Source: Validea’s Guru Investor Blog