AllMarket Outlook
logoArgusJune 06, 2023

Daily Spotlight: Argus's Favored Classes, Segments

Market Outlook
Bearish - Short term

Stocks continued to rally in May, while bond prices dipped during the debt-ceiling debate. Even so, both asset classes are in positive territory year-to-date. Looking ahead, our Stock-Bond Barometer model modestly favors bonds over stocks for long-term portfolios. In other words, these asset classes should be near their target weights in diversified portfolios, with a slight tilt toward fixed income, given the rise in yields since early 2022. We are now overweight on large-caps. We favor large-caps for growth exposure and financial strength, while small-caps offer value. Our recommended exposure to small- and mid-caps is now 12%-13% of equity allocation, below the benchmark weighting. U.S. stocks have outperformed global stocks over the trailing five-year period, though international stocks have performed well more recently. We expect the long-term trend favoring U.S. stocks to re-emerge, given volatile and erratic global economic, political, geopolitical, and currency conditions. That said, international stocks offer favorable near-term valuations, and we target 7%-8% of equity exposure to the group. Value outperformed in 2022 due to the negative impact of rising interest rates on growth valuations. As rates decline, growth stocks are recovering in early 2023. Over the longer term, we anticipate that growth, led by the Tech and Healthcare sectors, will top returns from value, led by the Energy and Basic Materials sectors, due to favorable secular, demographic, and regulatory trends.

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