September has historically been a seasonally weak month for equities, and market performance over the past month has certainly revived that reputation. Hawkish comments from key Fed officials have further heightened market jitters at a time when investors are anxiously weighing their next move. Cleveland Federal Reserve Chair Loretta Mester said last week she sees more room for further rate hikes and that a recession will not stop the central bank from acting. With monetary policy tightening further in the coming months and Wall Street sinking into the depths of a bear market chasm, many investors are wondering if now is the time to exit the stock market and switch their money to other asset classes. CNBC Pro spoke to market watchers and scoured investment bank research to find out what the pros think. State Street Ben Luk, senior multi-asset strategist at State Street Global Markets, believes there is “no point” for investors exiting equities simply because “there aren’t too many bond markets to go to anyway.” Instead, it’s about where investors allocate their money within the space. “We like defensive quality companies that pay good dividends. We like energy stocks, we like materials stocks, we like healthcare stocks, that’s going to be an area we’ll continue to hold in terms of stock preference,” Luk told CNBC Pro. But he takes a “market neutral” approach, funding his “overweights” with “underweights” in financials, utilities and retail, thus maintaining his overall equity allocation within the portfolio. He believes a portfolio that’s 50% stocks, 30% bonds, and 20% cash “still works well” and doesn’t require “a major shift” right now. However, he warned that the allocation to cash could increase if uncertainty rises. Luk noted that in previous “crisis scenarios” like the dot-com bubble and the 2008 crash, cash holdings were around 25% to 30%, compared to the current level of around 19%. In bonds, he believes US Treasuries will benefit most from capital inflows into America as recession risks rise. They are the most defensive when it comes to hedging against stock risks, Luk said. UBS’s balanced 60-40 portfolio, with 60% invested in equities and 40% in bonds, has traditionally been a mainstay of a diversified investment strategy. But Kelvin Tay, regional chief investment officer at UBS Global Wealth Management, believes the strategy could “suffer” if the market environment evolves. “We have urged investors to have alternatives in their portfolios because over the next five years, as we move from a very low interest rate environment to a structurally higher interest rate environment, traditionally balanced bond and equity portfolios will suffer. “This year has been a really eye-opening one,” he said. Investors should have exposure to private equity, private debt and hedge funds to “anchor” the portfolio, he added flexibility to adjust their holdings have performed “really well”, while private equity’s longer investment horizons mean that “returns are usually much better” when investors hold them longer.BlackRock, meanwhile, BlackRock – the world’s largest wealth manager – said in a Announced on Sept. 26 that he had bearish views on equities “Many central banks do not recognize the depth of the recession needed to bring inflation down quickly,” wrote Jean Boivin and his team of strategists at the BlackRock Investment Institute in the statement, “Markets haven’t priced that in, so we’re avoiding most stocks.” He said he doesn’t see a soft landing for the company Fed, which in turn would create more volatility and pressure on risky assets. “We are tactically underweight developed market equities as equities are not fully pricing in recession risks… We favor investment grade credit as yields better offset default risk. Also, high-quality bonds can weather a recession better than stocks. We find inflation-linked bonds more attractive and remain cautious on long-dated nominal government bonds given persistent inflation,” Boivin said. Goldman Sachs Goldman recommends investors prioritize short-duration stocks over long-duration stocks distant future are more sensitive to changes in the discount rate caused by higher interest rates,” Goldman strategists led by David Kostin said in a statement Sept. 23. “Elevated uncertainty argues for defensive positioning short duration outperforms long duration. Own stocks with “quality” attributes like strong balance sheets, high returns on investments and stable revenue growth,” he added. The bank’s short-duration basket of stocks includes Macy’s, General Motors, Warren Buffett’s favorite Occidental Petroleum, Regeneron Pharmaceuticals, Micron, Advanc ed Micro Devices and Valvoline. Stocks that made Goldman’s “quality basket” include Alphabet, O’Reilly Automotive, Home Depot, Thermo Fisher Scientific, and Accenture.
