By Barbara Kollmeyer, MarketWatch
With second-quarter earnings season set to get under way, optimism for equities appears to be in short supply.
A third-straight losing day could be shaping up for Wall Street stocks as investors count down to comments from Fed Chairman Jerome Powell and hang on for dear life to hopes for interest rate cuts.
Morgan Stanley got the week started by telling investors to sell global stocks on the view any Fed cut will be overshadowed by weaker growth. There’s hope for stocks yet in our call of the day from BlackRock, whose midyear outlook says investors should get slightly more defensive against an uncertain global backdrop and raise some cash.
Unlike Morgan Stanley, they still like some stocks and are sticking to an overweight stance on U.S. equities, owing to “reasonable valuations.” That’s even as they downgraded their global growth outlook for the second half of the year.
“The risk premium that investors demand on U.S. equities has steadily fallen yet is well above the levels seen in previous cycles,” said the BlackRock team, headed by Vice Chairman Philipp Hildebrand, in a note to clients.
Equity risk premium is basically the long-term expected return advantage of holding stocks over assets perceived as risk free. BlackRock added that investors should also consider the fact that the dividend yield on the S&P 500 is comparable to that of the 10-year Treasury yield /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y +0.25% .
However, if you’re in the market for equities elsewhere, the asset manager is less keen, downshifting to neutral on European and Japan equities, largely due to exposure to China. U.S. bonds, by the way are less attractive because the Fed may ease less than the market expects.
Getting specific on which stocks to buy, BTIG’s chief equity strategist Julian Emanuel says investors should stick to energy — trade progress is among the factors that could boost oil demand, financials — central banks could boost long-term yields — and health care — “largely insulated from geopolitical crosscurrents.”
Names he likes include: Square Inc. /zigman2/quotes/205989440/composite SQ -0.90% , Thermo Fisher /zigman2/quotes/201150432/composite TMO +1.23% , Exact Science /zigman2/quotes/206653925/composite EXAS +0.51% and Scorpio Tankers /zigman2/quotes/205669834/composite STNG -0.63% and GasLog /zigman2/quotes/204387172/composite GLOG +1.04% .
A third session of losses is underway for the Dow /zigman2/quotes/210598065/realtime DJIA +1.85% , S&P /zigman2/quotes/210599714/realtime SPX +1.95% and Nasdaq /zigman2/quotes/210598365/realtime COMP +1.55% .
Gold is softer, along with oil and the dollar /zigman2/quotes/210598269/delayed DXY +0.39% is steady.