S&P 500 ended in the green again after minutes from the Fed’s most recent meeting confirmed that officials agreed on switching soon to smaller rate hikes.
Should you turn bullish on equities now?
You’ve got very attractive bond yields. People are going to start buying bonds and that’s going to spin over to the valuation of equities, which we think could be really cheap based on individual companies.
For the year, the benchmark index, despite a significant recovery in recent weeks, is still down more than 15%. Expectations are now for a 50-bps increase in December following the recent CPI print that told a tale of peak inflation (detailed here).
Put together, not may be a great time to hunt for quality names on a bargain.
Castellini reveals a few stocks he likes
In terms of what to own, Castellini recommends companies with a reliable free cash flow and ability to meet or beat earnings estimates. A name that matches that criteria is Exxon Mobil Corp (NYSE: XOM).
He finds it a safe investment even if oil prices slip to sub $70 level. Other than that, Castellini is bullish on a bunch of retail names as well.
Ulta Beauty, Macy’s, Dick’s, Best Buy, Home Depot have told things a cautious management wouldn’t at the verge of hard recession. They said consumer is better than you think. These names will see earnings surprise over the next nine months.
Even if the U.S. economy ends up in a recession, it will likely not be a deep one, Castellini concluded.
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