There's only so long the economy can operate at these higher rates: John Hancock's Emily Roland

Stock markets right now joining us for that is Emily Rowland. She is Co Chief Investment Strategist at John Hancock Investment Management. Emily, you say that the markets right now are kind of like a Moody teenager. Why Why do you say that? You want to explain? Sure. So we’ve been in this period where the economic data for April are actually coming in pretty disappointing. You had a slew of it last week. Consumer confidence at a two year low, both the ISM manufacturing and services PMI slipping into contraction. Of course the April jobs report missed expectations by a mile but risk assets are loving it. Because we’re back in this bad news as good news feedback loop where you’re seeing this excitement that maybe expectations that the Fed can cut are being revived. So we’re seeing risk assets take off, Bitcoin surging unprofitable growth at any price type companies are leading Chinese equities. Are moving in parabolic fashion. It feels like a little bit of a phase, like a Moody teenager would go through. They’re kind of erratic. They can be unpredictable. They can be strange. But you know that they end at some point. So we’re suggesting maybe a ride the phase out and continue to lean into higher quality companies that are trading at reasonable valuation. I was gonna say what happens in the next phase? You think the markets come back down or. Well, I think there’s only so long that the economy can operate at these higher rates, right. So eventually something is likely to to crack or likely to see the unemployment rate go up and experience an economic contraction. And that type of environment, we would suggest fading riskier assets, still owning equities. But again, those higher quality stocks, they’re going to have a better ability to navigate that late cycle environment that eventually unfolds into contraction. Where do you see those stocks? What sectors are you talking? Yeah, so we still like technology stocks if you want quality. So great balance sheets, lots of cash, great return on equity, mega cap tech is going to be your poster child for that. Of course, we know we’ve got a little bit of a valuation issue with tech. Those stocks are overbought. They are doing the bulk of the heavy lifting from an earnings standpoint. But if you look at something like the. S&P 500 growth index, it’s trading at a 45% premium to its twenty year average. So we want to balance that with stocks that are actually on sale. So we’re looking at things like mid cap stocks, particularly industrials that are benefiting from all the fiscal spending that’s going on at Stan Drunken Miller did a great job talking about this on your show. Yesterday. So we want to follow where that’s deficit spending is going and it’s things like infrastructure projects in the United States. We’re seeing a booming environment in the Midwest right now, so we’re looking at midcap stocks as being the best way to play that given their overweight to the industrial sector.