Investing.com -- Investors should brace for a “stock picker’s market” ahead, according to Barclays (LON:BARC) strategists.
The investment bank points out that sector return dispersion increased substantially across both the US and European markets following the 2016 US presidential election. However, unlike in the EU where the increase in dispersion was temporary, the US could maintain elevated levels if the market follows a similar trajectory as it did during President Trump's initial term.
“We think this makes sense as policy shifts during Trump's first stint in the White House significantly reshuffled opportunities for upside among sectors,” strategists led by Venu Krishna said in a note.
“Will the same happen this time? Initial reactions seem to suggest that the market thinks so,” they added.
Strategists reflect on how the new administration's policies might diverge from the previous one, potentially leading to a more pronounced variation in returns among different sectors, resulting in a “more of a stock (and sector) picker's market.”
In this context, Barclays sees potential opportunities within healthcare sub-sectors, which tend to benefit post-elections. However, they are cautious about the financial sector, considering it to be fully priced at present.
In terms of style, the investment bank feels skeptical of the ongoing Momentum rally and suggests that the gains in small-cap stocks might not be sustainable.
US stocks ended lower on Thursday after Federal Reserve Chair Jerome Powell signaled no urgency for further rate cuts this year.
Speaking at a Dallas Fed event, Powell highlighted the continued growth of the economy, a strong labor market, and inflation still above the 2% target as reasons for a cautious approach to monetary easing.
Despite traders maintaining expectations for a 25-basis-point rate cut in December, confidence in this outcome dipped. According to the CME FedWatch tool, the odds dropped to 62%, down from 76% earlier in the day and 82.5% on Wednesday.