NEW YORK (The Street) -- Fund managers and strategists point to banks and transport stocks as likely beneficiaries if the Federal Reserve further cuts bond purchases next week, with tech stocks shunned for exposure to a strengthening currency.
While strategists are divided on the Fed's course of action at this month's meeting scheduled to begin a week from today, there is broad agreement that investors should position their portfolios to prepare for a gradual reduction in monetary stimulus.
Prudential Financial (PRU) market strategist Quincy Krosby says that in the absence of a large external shock, the central bank will likely maintain its schedule to continue to reduce bond purchases.
"Unless it appears the economy is struggling and momentum has halted, particularly with the housing market, they are likely to stay on pace," Krosby said in a phone interview.
Krosby said this would give the Fed leeway to alter the pace of bond purchases - cutting by say $5 billion instead of $10 billion in any given month - if the economy appeared to falter. She noted it would also give credibility to commentary from Bernanke, who suggested at a December news conference that the central bank would cut bond purchases in $10 billion increments if the economic recovery continued to gain strength.
In terms of portfolio positioning, Krosby suggests bank stocks - both large cap banks and regional lenders - would likely benefit from the broader economic pick-up. Prudential has more than $1 trillion in assets under management.
Whitebox Mutual Funds senior portfolio manager Paul Karos likes transport stocks that will benefit from shifting goods across the country as economic activity picks up. He points to truckload carriers and airlines as particularly attractive, noting airlines face capacity constraints and enjoy expanding margins.