Rising Interest Rates Fail to Slow Down Stocks

Despite the U.S. Federal Reserve’s continuous increase in interest rates, stocks are experiencing a successful year. The tech-heavy Nasdaq has surged by 35%, closely followed by the S & P 500. However, Andrew Slimmon, senior portfolio manager at Morgan Stanley Investment Management, advises caution after the busiest week for earnings.

Reasons for Caution

Slimmon believes that the stock market’s impressive performance and high sentiment compared to the beginning of the year warrant some caution. He points out that high-risk, high-beta stocks have particularly thrived, signaling a need for careful consideration.

Mega-Cap Earnings and Market Outlook

Last week, Microsoft and Alphabet initiated earnings season for mega-cap stocks, with Apple and Amazon set to follow this week. Slimmon remains positive about mega-cap tech stocks, acknowledging Microsoft’s strong results. However, he believes that Microsoft’s pullback was due to being overbought prior to the quarter. Slimmon is keeping an eye on Microsoft and AI chip stock Nvidia as potential investments but prefers to wait until after earnings season.

Broadening Investor Interests and Market Impact

Slimmon suggests that investors’ expanding interests contribute to selling pressure on Big Tech stocks. While the Nasdaq has experienced volatility during the earnings period, the Dow Jones Industrial Average has risen for 13 consecutive sessions. Investors are seeking market opportunities beyond the sidelines, leading to the underperformance of certain stocks.

Value Stocks, Commodities, and Market Speculation

Slimmon speculates that the outperformance of value stocks and commodities may be connected to the recovery in the Chinese market and the recent visit by the U.S. Secretary of the Treasury, Janet Yellen. He wonders whether China is planning additional stimulus measures, which could benefit U.S. industrial stocks. Additionally, Slimmon anticipates potential consumer-focused relief measures ahead of the next Presidential elections, potentially boosting consumer strength. Consequently, he expresses a liking for stocks such as Nucor Corp, JPMorgan, and Ameriprise Financial.