To The Moon

Key Takeaways:

1. 5 Investing Bankings’ 2nd half 2022's Expectations and Trend Forecasts
2. Top Sectors and stocks Opportunities for 2nd half of 2022 from 5 Institutions
3. Bond Opportunities being highlighted by 6 institutions

In The first half of 2022, Stocks around the world slumped as economic uncertainty surged with the war in Europe, a lockdown-induced recession in Asia's biggest economy, stubbornly high inflation, and several major central banks pursuing the most aggressive series of policy rate increases in decades.

So far in this year, the $S&P 500(.SPX)$ performed the biggest drop since 1932 (see chart below) .

Research from global investment management firm T. Rowe Price: War in Ukraine and sanctions against Russia could continue pushing commodity prices higher but also could accelerate a shift to renewable energy.

And inflation is still the key issue for global investors.BlackRock also pointed out that Market direction driven by Fed machinations, the market is most worried about inflation.

Cathie Woods says we are already in a recession, in her view, the rapid increase in inventories this year, among other efforts to mitigate supply chain issues, has the market set up for a deflationary period.

Ray Dalio's Bridgewater Associates— the world's largest hedge fund — has adopted a cautious forecast on the global economy, and co-CIO Greg Jensen is expecting a downturn.

From a fundamental perspective,T. Rowe Price mentioned that the balance of equity risks is shifting from interest rates to earnings growth in next half year.

Deutsche Bank analyst Jim Reid shared in a client note on Tuesday that what he sees as the best leading indicator for a recession in the U.S. is a continued increase in jobless claims. Jim Reid point out “However, it’s hard to see markets recovering if we see firm evidence of the recession.”

While Fundstrat's Tom Lee said on Monday(June 27th) :

"There are growing signs that the FED is less behind the inflation curve than investors think, and that could set the stock market up for more gains ahead,"If 'upside risk' to inflation is diminishing, FED is less behind = positive for risk assets if the 'bullwhip' effect is indeed underway, we could see many of the inflationary pressures ease in the second half of 2022."

Tiger Broker commentor Dr Lan noted:

At present, the market has not shown any "risk-off" phenomenon.The "safe-haven assets" like gold and U.S. bonds are also falling. Although the concept of crude oil has risen, energy does not have the function of hedging and the risk of energy is greater. That is to say, despite falling for half a year, the market has not conceded defeat and still thinks there is an opportunity.

Below are 5 Investing Bankings’ 2nd half 2022's Expectations and Trend Forecasts

1. Michael Hartnett, a strategist at B. of A. Global Investment Strategy,

"From the perspective of past history, the bear market decline of the S&P 500 from peak to trough averaged 37.3% and lasted for 289 trading days. This suggests that U.S. stocks may bottom out on October 19, 2022, which coincides with the 35th anniversary of Black Monday in 1987. Likewise, the bottom of the S&P 500 could be at 3,000 if calculated on the statistical mean.

Bank of America predicts that if history is any guide, the next bull market in U.S. stocks may come in a few months, and the S&P 500 will have a chance to rise to 6,000 points.

2. Marko Kolanovic, chief strategist for global markets at JPMorgan, said that

"The U.S. economy will have a ‘soft landing’ and investors should brace for strong returns in equities in the 2nd half of 2022. The confidence stems from the fact that U.S. inflation will halve in the second half of the year, from 8.4% to 4.2%, which will allow the Fed to turn and avoid a recession. Mainly due to a ceasefire in the Russian-Ukrainian conflict in the second half of the year, while investors and consumers are eager for inflation to fall after supply chain disruptions and pandemic restrictions pushed inflation to a 40-year high.”

3. UBS chief investment officer Mark Haefele said in a mid-year outlook report,

"There are many potential outcomes for the U.S. stock market in the 2nd half of the year, and the only certainty is that the road to the end of the year will remain a volatile one."

4. Ryan Detrick, head of market strategy at LPL Financial, published a research report on June 22,

pointed out that statistics show that if the S&P 500 falls by more than 15% in the first half of the year, it will end with a rise every time in the second half of the year, with an average return of nearly 24%.

 5. Schwab Research Center believes history's lessons about the impact of Fed rate-hike cycles suggest a recession is more likely than a soft landing.

“Given high inflation, rising short-term interest rates, and weakening growth outlooks, we believe stocks of companies reflecting certain factors will perform better in relative terms; these include strong free cash flow, healthy balance sheets (cash rich, low debt), positive earnings revisions, and low volatility. Returns should be better for fixed income investors in the second half of 2022, now that interest rates have reset higher.”

Sounds like the Economic uncertainty may have peaked in the first half of 2022 but could still contribute to volatility and affect market performance for the remainder of the year.

Top Sectors and stocks Opportunities for 2nd half of 2022 from 5 Institutions

As the first half of 2022 draws to a close, a group of investment bank strategists on Wall Street are also busy advising clients on their stock and debt investments in the second half of the year.

1. Blackrock shared in midyear report: Investor need for diversification and resilience in equity portfolios，Stock valuations have come down, but company earnings remain solid.

" We advocate using a barbell strategy to position for these competing outcomes. This includes owning energy and financials as inflation fighters, and healthcare for a dose of resilience. We find other traditionally defensive sectors, including utilities and staples, to be expensive relative to the broader market. "

2. JPMorgan Global Research, has long been regarded as one of the most optimistic research institutions on Wall Street. The bank's mid-year outlook for equity strategists also maintained an optimistic view.

The bank's team of strategists are recommending buying cyclical stocksand avoiding defensive stocks, arguing that cyclical stocks such as energy are now more attractively valued. The team also sees investment opportunities in small-cap and growth stocks, while defensive stocks such as consumer commodities and utilities have fewer opportunities and greater risk.

3. Wells Fargo identified a number of opportunities in three industries.

Firstly, Wells Fargo sees integrated oil companies, including those involved in upstream and downstream businesses, and midstream C companies with assets such as oil pipelines will be"welcomed."

For like, $TotalEnergies SE(TTFNF)$ , an integrated oil and gas company and U.S. oil company$Range Resources(RRC)$ Corp. Gain a buy rating from Center for Financial Research and Analysis& Ford Equity Research respectively.

Secondly, Wells Fargo also picked three healthcare subsectors to watch closely:

1) Companies in the life sciences tools and services industry involved in drug development, discovery, and production.

2) Companies in the managed care sub-segment that provide health care services while improving quality and reducing costs.

3) The medical device and equipment industry, which consists of companies that develop, manufacture and distribute healthcare technologies.

Specific buy ratings include $Veeva(VEEV)$ ., a provider of software solutions for the life sciences industry, and $Biomarin Pharmaceutical(BMRN)$ which focuses on rare disease treatments.

Thirdly, technology company with price resilient and high-quality financial metrics across the IT services, networking equipment, and enterprise software are worth epected by Wells Fargo.

Companies rated "Strong Buy" include $Atlassian Corporation PLC(TEAM)$ , which provides software and IT solutions for teams. $Littelfuse(LFUS)$ a major supplier of fuses and relays, is expanding its power semiconductor business and is expected to outperform.

4. Global investment management firm T.Rowe Price Group Inc shared some important potential takeaways in this 2022’s Midyear Market Outlook.

This company highlighted Selective Value Stocks, Real Asset Equities, Emerging Market Equities, Chinese Equities are potential opportunities for next half of 2022, Also Dynamic Bond, Allocation Strategies, Credie, Global High Yield Bonds, Emerging Market Debt.

Source from troweprice.com

5. CITIC Securities said that historically, sectors that are more defensive in recession trades have outperformed. Analysts suggest focusing on three main lines: varieties that benefit from "consumption downgrade", energy sources with low valuations and high profit growth, and technology blue chips with strong certainty.

Consumer varieties with relatively defensive attributes, especially the "consumption downgrade" mainline, including $McDonald's(MCD)$ , $Herbalife(HLF)$ , $The Kraft Heinz Company(KHC)$ , and discount retailer $Dollar Tree(DLTR)$ ;

Short-term oil prices are expected to remain high, and the profits of energy companies are expected to remain high. It is recommended to pay attention to $Chevron(CVX)$ and $Exxon Mobil(XOM)$ , whose valuations are at historically low levels and their earnings maintain rapid growth;

It is expected that after the Q3, as the market's concerns about the Fed's excessive tightening begin to gradually weaken, the marginal increase in liquidity expectations may lead to the restoration of the valuation of high-quality technology companies. It is relatively optimistic: 1) Software/cloud computing leaders Microsoft and Salesforce; 2) Palo Alto Networks, which fully deploys network security; 3) NVIDIA and AMD, the leaders in the chip subdivision track.

Bond Opportunities being highlighted by 6 institutions

Seems many analysts are more optimistic about the bond market in the 2nd half of 2022.

According to a research note from Bespoke Investment Group,The traditional 60/40 Stock and Bond Strategy’s Time Has Come Again, the 60/40 portfolio suffered a negative total return of 17.8% since the beginning of 2022.

1. Citigroup's chief investment officer David Bailin shared in the Midyear Outlook Report of "Investing in the Afterglow of a Boom", investment-grade corporate debt is a better option as negative real interest rates weigh on stocks and lower Treasury yields Debt investment varieties that can well hedge against stock market risks.

Source：citi-global-wealth-investments-issues-mid-year-outlook-2022

2. HCBC.HK believes the global growth will slow down but remain positive (with significant geographical differences),inflation will start to decline slowly, and US rate expectations are close to their peak. As a result, we remain invested but with a focus on quality, income and diversification. With a six-month view, we continue to balance value vs growth stocks,and cyclical vs defensive sectors.

In addition to macro variables, we believe it’s key to consider the impact of recent shocks and structural changes, and to pick the companies that have the ability and the foresight to adapt to these changes. Dispersion between geographies, sectors, and companies will further rise, in our view, with the most resilient of them continuing to outperform.

www.hsbc.co.uk

3. To Adam Hetts, global head of portfolio construction and strategy at Janus Henderson Investors, the insurance provided by bonds in a balanced portfolio was always valid but became too expensive when yields fell to historic lows.

4. Guggenheim Partners global chief investment officer Scott Minerd shared publicly:As a hedge, the firm’s portfolio allocation flipped to emphasize long-term Treasuries, which would be expected to rally if fissures in the financial system worsen.

5. David A. Levy, head of the Jerome Levy Forecasting Institute, told clients the Treasury market already appeared to have discounted the Fed’s expected rate increases and had also become oversold in disorderly trading. Unusually, risk-free government securities also failed to benefit from the turmoil in risk markets, which he didn’t think would persist.

6. John Higgins of Capital Economics said a tighter monetary policy may bring forward the peak in yields but could also result in weaker economic growth and, in turn, corporate profits falling short of analysts’ consensus expectations. That scenario would hurt stocks but likely boost bonds.

In general, we are also looking forward to a Jedi rebound in the second half of 2022, because the further FED rate hike may not have much room, the current stock market valuation is much lower than the height, especially of many small companies, and the financial situation of US large companies is very well, even the real estate giants are not going bankrupt as 2008 happened.

While it is possible that the economy will slip into recession, this time should be milder compare to a recession like in 2000 and 2008,

So, it's still very likely that there will be a panicky stock market in the next few months. In that case, perhaps its time to be optimistic, just remember Buffett's saying: be greedy when others are fearful.

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