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- With healthy consumers and low inflation, the U.S. economy will continue to expand this year.
- BNY Mellon Wealth Management’s chief investment officer explained why the stock’s upside potential is limited.
- Here are five parts of the market that investors can safely participate in right now.
Sinead Colton Grant is stepping into her new role as chief investment officer at BNY Mellon Wealth Management.
The 28-year market veteran is no stranger to BNY Mellon, even though she’s only been in the job for about two weeks. She joined the $290 billion wealth management division as head of equities in mid-2020 after nine years at a subsidiary of BNY Mellon, and previously held positions including BlackRock, Invesco and JPMorgan Asset Management. worked at a company.
Colton Grant has had some amazing experiences throughout his career in the marketplace. And while she’s ready for anything, she’s optimistic about her next year.
“We’re entering a period where we’re seeing lower interest rates and a lot of investment opportunities with that, so it’s a really exciting time to be the steward of a client’s portfolio,” Colton Grant said in a recent interview with Business Insider. Told. .
What to expect in the economy this year
The theme of BNY Mellon Wealth Management’s 2024 Outlook Report is a “healthy economic slowdown.” Colton Grant says there is only about a 30% chance of the U.S. going into recession, and his firm expects GDP growth to slow to 1% to 2% this year.
Many economists were shocked that the economy continued to expand in 2023, given that interest rates rose by more than 5 percentage points in a short period of time in response to rampant inflation.Just over a year ago, even a model The probability of recession is estimated to be 100%..
When asked why growth beat consensus expectations, Colton Grant cited two factors. One is a 40% increase in total assets since March 2020, and the other is a smaller-than-expected impact from debt servicing costs, which remain well above but below their lowest levels. pre-pandemic levels.
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consumer spending accounts for two-thirds of US GDPColton Grant points out, and the report suggests that Shopping continued at a healthy pace All through the holiday season.
The investment director also said that millions of people are already locked into fixed-rate mortgages, despite interest rates and mortgage rates rising sharply over the past two years. Therefore, buying a house is incredibly expensive, but its high interest rates do not affect the property owner.
“When you combine those two, add to that a stronger labor market, it makes consumers feel pretty good,” Colton Grant said.
However, Colton Grant acknowledged that there are serious differences in the economic circumstances of high-income and low-income households.consumer psychology This fall was surprisingly weak.contradicts. relatively low unemployment rate and other indicators. Economists are perplexed by this soft sentiment, but they may be out of touch with ordinary consumers.
Colton Grant predicted that inflation would reach its highest level in decades in 2022, putting significant pressure on household budgets, but that price increases have since receded and are expected to reach 2.5% to 3.5% in 2024. He said it was expected to be over within a short period of time. This development should allow the Fed to cut rates four times in 2024, starting in the second quarter. But that means prices are still rising – just at a slower pace.
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Wage growth also improved But sticker shock at grocery stores is having an impact on shoppers, even if it only shows up in sentiment data.
“We’re talking about consumers as a collective, but it’s a much more diverse group,” Colton Grant said. “Because obviously inflation is going to be more severe in lower income groups.”
David Kelley, chief global strategist at JPMorgan Asset Management, would agree with Colton Grant’s assessment. he thinks a recession is unlikely Because while consumers are largely doing well thanks to both the wealth effect and falling inflation, he was quick to focus on wealth inequality.
“We estimate that nominal household net worth increased by more than $11 trillion last year, an increase of about 8%,” Kelly said in a recent interview. “That’s very good, but of course it’s very highly concentrated.”
Kelly continued: “I think in terms of numbers, many households are feeling the pinch. But in terms of income and spending power, the consumer sector as a whole is doing pretty well.” shape. “
What to expect from the stock market this year
Colton Grant said if the U.S. economy continues to grow as expected, corporate profits should grow as well. He expects the S&P 500 index to earn the equivalent of $235 to $245 next year, which equates to roughly 7% to 11% growth. Artificial intelligence should improve productivity, she says.
“What we’re looking for is how do we start to see AI really take off and start having a significant impact on companies’ bottom lines,” Colton Grant said. “We got a lot of excitement last year, and 2024 is the year we want to see it actually start being implemented in enterprises.”
However, investors should not expect earnings growth to translate into a proportional increase in stock prices.
Instead, Colton Grant thinks the S&P 500 will be stuck between the 4,600 and 5,000 levels this year, with the midpoint at 4,800. This is just above the current high close of 4,796, but leaves the index only inches away from its current position. Based on the stock’s closing price in 2023, that range implies a 3.5% downside or a 5% upside.
“Our concern at the end of last year was that the economy was accelerating so strongly after the December Fed meeting that we were borrowing some of this year’s returns,” Colton Grant said. “And I think some of the price action that we’ve seen in the first week or so tends to confirm that. There’s a lot of enthusiasm in the market, but it’s a little over-the-top compared to what the Fed actually ends up doing. Maybe.”
The investment director later added: “You can’t expect double-digit returns every two months. That’s not sustainable.”
Achieving double-digit returns over the next 12 months may not be possible, but the S&P 500 may come close. Colton Grant said if there is no recession and business continues to perform well, the index could reach 5,200, which would be a 9% increase and in line with the long-term average.
Top 5 Places to Invest Now
BNY Mellon Wealth Management may be neutral on stocks overall, but it has a bullish overweight rating on U.S. stocks. In the domestic market, Colton Grant likes his five investments.
One of Colton Grant’s most powerful observations is: large company It is better positioned than its small-cap peers. Her position makes her a contrast to Kelly. BMO Capital Markets Strategist. Large-cap stocks may not be cheap, but she believes they are a stronger bet for growth.
“We like large-cap stocks because we think they are poised to benefit from their history of technological advances, the adoption of AI, and the adoption of innovation,” said Colton Grant.
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Financial status should also be considered, as many large companies are tied to low borrowing costs and are therefore not affected by high interest rates, he added. Small-cap stocks may try to make a comeback as interest rates fall this year, but Colton Grant is sticking with the big companies for now.
As far as elements go, Colton Grant said he likes balance. growth and value KK.
“We’re looking at some of the names that have been beaten down a little bit over the last 12 months or so, but there are some attractive opportunities within that that we’re looking to capitalize on,” Colton Grant said. ” he said. .
Colton Grant continued: “We think it’s an environment where values can get better, but at the same time we never want to consider growth. “I don’t feel like I’m in a good situation,” or the other. ”
Regarding the sector, the investment director praised: finance and technology.
“The financial side tends to focus on larger areas,” Colton Grant said. “I think there’s a lot more efficiency across the board and a lot more capital strength. That’s attractive.”
Regarding technology, she said: “Across the board, these companies are becoming more efficient. They’re deploying technology more quickly and their reach is expanding. There are some headwinds right now, but they want to keep it that way. “In particular, we look at the export controls that are in place for some chips, but we think the sector as a whole is poised to continue to dominate.” I am.”
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