David Bianco, New York-based chief investment officer-Americas at DWS Group, maintains a "cautious" stance on the entire equity market, citing that profits will likely be under pressure across the board for at least the remainder of the year.
"We are on the cusp of a 'profit recession' whereby year-over-year earnings will likely decline for two consecutive quarters in the first half of 2023," he said in an interview. "This suggests that stocks will probably remain range-bound for much of this year."
Nonetheless, there are sectors within equities that Mr. Bianco likes, including financial — particularly banks and insurance companies, and health care — especially big pharma and biotech.
Banks, he noted, are seeing higher net interest margins, while they are maintaining adequate loan loss provisions to protect earnings in the event of a mild recession. Just as important, bank profits will benefit from higher interest rates and profits should be fairly strong as credit costs are not expected to climb, he said.
Health-care stocks, he noted, will benefit from continued product innovations, strong pipelines and aging demographics. "These are defensive positions and they are largely resistant to cyclical disruptions," he added.
For now, Mr. Bianco is avoiding most stocks in the auto, retailer, semiconductor, machinery and materials sectors, as these segments of the market are facing profit pressures.
As for macroeconomic issues, he said that it's clear the Federal Reserve is very committed to tamping down inflation by hiking interest rates — and the main worry among institutional investors is whether this scenario will lead to a recession. "Owing to a strong jobs market, the Fed seems undeterred in tightening," he said. "If this leads to a recession — perhaps in the first half of 2023 — I think it will be a mild one."
DWS has about $900 billion in assets under management.