Bull Market Will Survive the Fed's Move, Says JP Morgan Strategist
The Federal Reserve will likely raise interest rates in December, but that won't end the bull market, said Samantha Azzarello, global market strategist for JPMorgan Funds.
"We identify four main causes of bear markets: recessions, commodity spikes, aggressive Fed tightening and extreme valuations," said Azzarello. "When we look at how the Fed plans to raise rates, we do not think it is going to be aggressive in any way."
When it comes to equity valuations, Azzarello said the S&P 500's trailing 12-month multiple of 19 is a tad richer than its 25-year average, but not enough to hold her back from buying. She said energy shares are trading far more cheaply due to the selloff in crude.
"We like consumer discretionary and we like technology based on where we are in the cycle," said Azzarello, adding that she is far more partial to growth stocks than value.
"Growth companies are looking cheap and value companies are looking more expensive compared to these longer term averages," said Azzarello. "If we think we are in a lower growth environment - and we do - people are going to pay up for growth."
She also said Macy's (M) - Get Report third quarter earnings miss should not be taken as too much of a negative signal for the market or the strength of the consumer.
"I think you need to differentiate between traditional big-box retailers with brick-and-mortar stores and the Amazons (AMZN) - Get Report of the world with their new ways of getting products to consumers," said Azzarello. "I think that's where there is going to be a real divergence."
Finally, Azzarello said she expects the expansion to continue at a slow and steady pace in 2016. Her forecast is for approximately 2% GDP growth and around 1.5% inflation. On the earnings side, however, she said she is feeling a lot more optimistic as companies adapt to the strong dollar and finally take advantage of lower energy prices.
"We think in 2016, we are going to pick up where we left off in 2014 from an earnings perspective, and we are expecting about 10% earnings growth year-over-year," said Azzarello.