In this turbulent market, there are opportunities everywhere
In this turbulent market, opportunities abound, according to JPMorgan’s Mary Callahan Erdoes.
Stocks have been trading in a bear market this year as investors navigate inflation, Federal Reserve interest rate hikes and talk of a potential recession. On Wednesday, the S&P 500 rebounded after hitting a fresh low for the year in the prior session.
“While the world is focused on all the black swan events, there will be white swans that emerge,” Erdoes, CEO of JPMorgan Asset & Wealth Management, said at CNBC’s Delivering Alpha investor summit in New York City Wednesday. “Keeping your eye out for those white swans and … staying invested in these markets is one of the most important things and one of the most difficult things.”
A black swan is an unexpected event that results in panicked selling, while a white swan is a predictable crisis that can be addressed.
Mary Callahan Erdoes, JP Morgan, at CNBC’s Delivering Alpha, Sept. 28, 2022.
Scott Mlyn | CNBC
Staying invested means finding the right opportunities.
“There is alpha everywhere,” Erdoes said. “It’s in stocks. It’s in bonds. It’s in currencies. It’s in real estate. It’s in private markets. It’s in public markets. It’s everywhere, because we are in such a state of change.”
Alpha essentially refers to returns that beat the market’s performance.
Specifically, Erdoes sees a tremendous amount of opportunity in China, although she admits the country’s complex market might not be for everyone.
“Don’t fight investing in China,” she said. “It’s a country that is going to emerge from Covid. It’s a country that is going to put its 22% youth employment back to work. It’s an economy that is going to continue to invest in EVs, semis, et cetera.”
China is also moving toward its “Made in China 2025” goal of becoming a global leader in technology, she added.
She also likes U.K. banks, saying they might be “the most interesting thing you can invest in.” The country’s market and economy have been in turmoil. On Wednesday, the Bank of England purchased U.K. bonds in an effort to calm the market chaos.
“Last week people said don’t invest in a single thing in the U.K. That is exactly when people like us, and people in the room, think, ‘Let’s go look right there,”’ she said.
For John Vaske, head of Americas at Temasek, most of his investing activity is in the private market. Right now, he’s expecting a bearish few quarters, so he’s pulling some money out of favored names and plans to get back in at a lower price down the road. That includes companies like PayPal, Visa and Bill.com, he said.
Long term, investors should be prepared for the high likelihood of a recession in 2023 or 2024, said Roger Ferguson, former CEO of TIAA and former Federal Reserve vice chairman.
“The odds of a recession are really quite high,” he said.
However, investing is a long-term activity. Therefore, investors should look for four or five major trends that will create investable opportunities for the next decade or so, as well as markets that need disruption, he pointed out.
Major trends include an aging population and increasing longevity, the latter of which Ferguson hopes will return. That means looking in the health-care space, he said.
Another trend is defense spending, which is likely to go up, and some version of globalization. Investors are also going to have to get used to inflationary pressures, Ferguson noted.
“The Fed is going to work really hard to get [inflation] down. I think even their own projection doesn’t have them getting there as quickly as they’d like,” he said.
For those who might be scared off from stocks because of that inflationary pressure or the possibility of a recession, Erdoes pointed out that history provides the answer on why you should stick with investing. It is usually within a 10-day cycle that you have your best returns, she said. Therefore, missing the best 10 days in any market environment will cut your returns in half, she added.
“When you think about people who are responsible for very large sums of money, everybody in this room, it is irresponsible to be passive in what you’re doing right now,” she said.