Value stocks

Favoring value stocks in a volatile environment

“Equity returns beyond the intermediate future are unclear,” Hardy said in a Jan. 31 interview.

we inflation is at its highest since the 1980swith increases in wages, rent, input costs due to supply chain pressures, commodities and basically all price measures, Hardy said.

This has led the Federal Reserve to signal that it will raise its benchmark interest rate as early as March, a key step to reversing its pandemic-era low rate policies that have fueled hiring and growth, but have also contributed to inflation. Some analysts are even calling for a 50 basis point hike next month.

The policy change caused equity markets to sell off, Hardy said, “as we move from an environment where money is looking for a home to one where money is being pulled out of the system.”

Volatility will continue throughout this process, he said, but what happens next is harder to predict.

“Can economic growth stay strong amid this normalization? He asked. “Are inflationary forces easing in the second half of the year based on the change in monetary tactics? Are there unintended consequences in the world like we’ve already seen with Evergrande in China? »

Hardy’s short answer to these questions is to expect more volatility. And although US markets have been the toughest this year sale, they generally become a safe haven for investors during periods of volatility.

“So beyond the intermediate future, about next year or so, I expect US equities to benefit relative to the rest of the world,” Hardy said.

In general, Hardy said selling this year has seen a repositioning from risky assets to less risky assets. Value outperformed growth, but more importantly, he said, quality value stocks were the beneficiaries over low-quality value stocks.

“Many of these stocks have attractive relative valuations and have been overlooked by investors,” he said.

“As the market redefines the discount rate — where interest rates normalize, where monetary policy finally ends — you should continue to see value stocks and quality value stocks outperform,” he said. Hardy.

But, he added, but market volatility will continue.

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