David Rosenberg Equity Sectors
Keeping with 2022 being the “year of transition”, the slowdown in growth and earnings as monetary and fiscal policy turn into headwinds in many countries imply that, for global investors, there should be a sector bias away from pro-cyclicality to those that are more defensive in nature. It is important to note that this is a general theme, and of course may vary by geography.
Looking at prior occasions when the JPMorgan global manufacturing PMI (a proxy for growth) has peaked and activity decelerated back towards 50.0 – which marks the dividing line between growth and contraction – it pays to focus on defensive/defensive growth parts of the equity market. Health care, consumer staples, technology and communication services tend to outperform (the first two traditionally thought of as defensive sectors while the last two have become “defensive growth” in recent years).
It should be noted that, given the elevated valuations of many technology (and tech related) names this time may indeed be different compared to history. That said, it does not mean indiscriminately avoiding the sector. There are still opportunities within the technology space — profitable companies with stable margins that trade at reasonable valuations — that can be found beneath the surface.