By Steve Goldstein, MarketWatch
The problem with being cautious is that so is everyone else.
The forward price-to-earnings ratio of the S&P 500 consumer staples /zigman2/quotes/210600216/delayed XX:SP500.30 +0.33% is 20, compared to less than 17 for the broader S&P 500 /zigman2/quotes/210599714/realtime SPX +0.0073% , according to Refinitiv data.
“Our cross-asset view right now is an investor should be positioned relatively conservatively,” said David Lafferty, chief market strategist at Natixis Investment Managers, in our call of the day . “I don’t like to say defensive — people immediately read that as, oh, you like utilities and staples? And frankly, those are some of the most expensive parts of the market.”
Investors have to “thread the needle” and find lower beta stocks — that is, companies that are less volatile — that are still cyclical, he says. Such a path leads to value stocks, which have been on a roll. Since Monday, momentum stocks (those that had been showing strong price strength) have dropped around 10% while value has rallied about 7%, according to J.P. Morgan data.
Lafferty isn’t willing to proclaim the end of the momentum cycle. “I’m not ready to say that the 7-, 8-year trend has changed, based on four days worth of data.”
Any talk of value quite naturally leads to a discussion of financial stocks. Financial stocks /zigman2/quotes/209660484/composite XLF -0.36% have a price-to-earnings ratio of just 11.5. “People say, financial earnings are impaired. My answer to that is, yeah, and the P/Es more than reflect that,” Lafferty said.
If there is a recession — and Lafferty just expects a slowdown — financial stocks are pricing that in, whereas many other sectors are not.
While not as cheap as it was before the talk of recession and inverted yield curves bid up the yellow metal, gold /zigman2/quotes/210034565/delayed GC00 -0.06% is still a “reasonably good” defensive play, he says. “The opportunity cost to using gold as a hedge has been falling as interest rates have plunged,” he said.
The European Central Bank cut its main deposit rate by 10 basis points, announced a plan to restart bond purchases and announced a tiering system to help banks. In a press conference President Mario Draghi said there was broad consensus on bond buying. may announce a rate-cutting “road map” next week, according to the South China Morning Post .
President Trump overnight tweeted a delay to tariffs on Chinese goods by two weeks, the latest measure taken by the two sides to de-escalate the trade conflict ahead of talks in October. China’s government says its importers are inquiring about prices for American soybeans and pork, the Associated Press reports. Consumer price data for August and the latest jobless claims report are due from the U.S.
Anheuser-Busch InBev /zigman2/quotes/209225053/composite BUD +0.18% is continuing to explore a potential IPO of its Asia Pacific unit, according to The Wall Street Journal. Daily-deals firm Groupon /zigman2/quotes/207356672/composite GRPN -4.04% could be looking to buy online review company Yelp /zigman2/quotes/201334325/composite YELP +0.48% , The Wall Street Journal reported .
U.S. stocks /zigman2/quotes/210598065/realtime DJIA +0.01% /zigman2/quotes/210599714/realtime SPX +0.0073% /zigman2/quotes/210598365/realtime COMP +0.20% opened a bit higher after Trump’s move to delay tariffs and the ECB decision.