SinanAyhan
While the broader market indices (COMP.IND), (SP500), and (DJI) have rallied to kick off the 2023 trading year, UBS says that market conditions are not yet in place for a sustained rally. Still, the financial institution believes that Wall Street will hit an inflection point during 2023.
UBS noted that previous rallies in this cycle have been brief and argued that a turn to a longer-term upswing will require a shift in Federal Reserve policy.
“Central banks do appear to be nearing the end of tightening cycles. But policymakers have yet to signal a dovish pivot,” UBS said in an investor note. “So investors should be selective as they prepare for the inflection.”
Highlighting areas where it sees near-term value, UBS spotlighted “defensive sectors such as consumer staples and healthcare,” which “should prove relatively insulated from a weakening economy.” The firm added that “value stocks tend to perform well when inflation is high.”
UBS did not provide specific names, but here are some ETFs that cover the areas spotlighted by the firm: Consumer Staples Select Sector SPDR Fund (NYSEARCA:XLP), Vanguard Consumer Staples ETF (VDC), iShares U.S. Consumer Staples ETF (IYK), Health Care Select Sector SPDR Fund (NYSEARCA:XLV), Vanguard Health Care ETF (VHT) and the SPDR S&P Biotech ETF (XBI).
Additionally, UBS explained that it sees certain parts of the overall market will hit inflection points sooner than others. “We favor emerging market equities, early-cycle markets like Germany, and select stocks exposed to China’s reopening process,” the firm added.
For these areas, here are a few noteworthy investment vehicles: iShares MSCI Germany ETF (EWG), Global X DAX Germany ETF (DAX), iShares MSCI China ETF (MCHI), KraneShares CSI China Internet ETF (NYSEARCA:KWEB), and the iShares China Large-Cap ETF (FXI).
Looking at Monday’s early action, stocks are lower and rates are higher, as investors continue to react to Friday’s surprise surge in January payrolls.
