Second Half Outlook: Buy Mid-Caps, Oil Majors and Healthcare

First quarter earnings season is nearly over and that means it is time for market-watchers to forget individual stocks and once again focus on - and fulminate over - the Federal Reserve. 'Don't ask if or when the Fed will raise rates,' said John Manley, chief equity strategist for Wells Fargo Funds (WFC) - Get Report . 'Ask if the Fed will want to encourage or discourage economic growth in the next year, and I can't imagine the latter.' Valuations are full, but not extended, according to Manley. He said stocks need a 'kick in the pants' to turn overvalued and that probably requires better economic and earnings growth. 'I think we are moving in that direction, but it's not immediately clear,' said Manley. Stocks were tightly correlated to oil over the course of the first half of 2016. Manley expects the oil rally to slow and that link to break down. Nevertheless, he remains positive on large-cap multinational integrated energy stocks. 'We see value, yield and quality in some of the oil majors,' said Manley. 'That's what baby boomers need.' Manley said mid-caps may begin to make up lost ground in the second half of 2016 as investors try to play 'catch-up'‎. 'We see mid-caps offering the best risk adjusted returns and historically you can go back and see that,' said Manley. 'Mid-caps are not untried but they are not entirely mature and that offers portfolio managers a good place add some alpha along the way.' As for his favorite sectors, Manley said he likes healthcare best due to the aging population and large amounts of government money coming into the sector. Following healthcare, he is a big fan of technology stocks, primarily those that connect businesses. 'Businesses want to be as efficient as possible because they are going to face wage pressures,' said Manley. 'They need technology and productivity improvements to offset that.'