(MarketWatch) August is typically a volatile month for stocks, and this one certainly fits the bill.
After another rocky session, U.S. stocks on Wednesday finished pretty much where they started. DataTrek Research pointed to a New York Fed research finding that basically all the moves in the S&P 500 going back two decades is tied to the three days around Federal Open Market Committee meetings, and more recently, the Fed’s press conferences and dot plots. Guess who doesn’t meet in August?
Ash Alankar, head of global asset allocation at Janus Henderson Investors, says in the call of the day that financial markets may be shifting to a new era where fundamentals actually matter.
“The era of bad news is good news might be coming to an end,” Alankar said in a phone interview. On Wednesday, for instance, the news that three central banks cut interest rates was greeted by alarm rather than celebration, he pointed out.
Not that the fundamentals, particularly in the U.S., are terrible—interest rates are low, inflation is stable, job growth is still solid, many mortgage borrowers are able to refinance to still-lower payments—but Alankar isn’t a fan of stocks at the moment. He said the firm takes a close look at option pricing, and stocks aren’t pricing in enough downside.
One risk to stocks comes from President Donald Trump, he says. Alankar points out that Trump has elevated tariffs against China every time the S&P 500 has reached highs.
If there’s one thing the market isn’t expecting, it’s inflation. Yet he points out tariffs are on the rise, the Fed is loosening policy, and the labor market is strong—all ingredients for inflation. “If inflation comes, it comes fast,” he said.
Gold—where futures on Wednesday closed at the highest level since 2013—and precious metals look attractive, as do bonds, he says. In stocks, he prefers Japanese and European equities over U.S., and growth over value. Despite the historic gap between growth and value, Alankar says he prefers growth plays because they are long-duration assets.
