Markets may not move much heading into year-end, but if the opportunity does arise then investors would do well to pick up some “disruptive” technology and shale-focused energy stocks, said Nadia Lovell, U.S. equity strategist at JP Morgan Private Bank . “We continue to expect range-bound markets into year-end as expectations for a profit recovery starting in the fourth quarter are offset by potential election noise and concerns over Fed action,” said Lovell. At current levels, she said she favors a more selective approach with a preference for leaders in the e-commerce and cloud computing spaces. “We think there are tailwinds that will help these companies outperform over the longer term,” said Lovell. She is also constructive on shale-focused energy producers, but not because she is forecasting a colder winter on the horizon. Lovell sees a rebound in energy prices on the horizon and is focusing on the more profitable geographies like the Permian Basin that “can operate in a low oil environment.” Lovell likes the consumer discretionary sector as well, but more because of easy comparisons to last year’s earnings than due to expectations for a particularly merry selling season for retailers. “Last year inventories got to really high levels and that put downward pressure on a lot of retailers,” said Lovell. “Inventories are really clean coming into the fall, and we like the retailers with strong e-commerce programs and differentiated products.” Lovell said she is maintaining an overweight on healthcare stocks, acknowledging that it will likely remain volatile into the election given renewed drug pricing scrutiny. She said much of the negativity regarding drug pricing is priced in at current levels and the risk/reward is attractive on a 12 to 18 month basis. Finally, Lovell said she is neutral on financials, advising clients to sell into any rally associated with a potential December Fed hike. “We’d also use strong year-to-date performance to continue to reduce exposure to utilities, telecom, and consumer staples in favor of other dividend paying stocks within sectors with higher earnings growth and more valuation upside,” said Lovell.
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