Investors should consider investing new money in stocks.
This recent upheaval creates significant investment opportunities in cyclical and value stocks, according to Jeff Mills of Bryn Mawr Trust.
“[These areas] of the market, which have been considered dead for more than two months, is very encouraging for me “, the company’s chief investment officer told CNBC’s “Trading Nation” on Wednesday.
Although Mills believes more pain may be ahead, he cites energy, materials, industrials, and small caps as his top investment picks because they are tied to economic recovery and often do well in a rising interest rate environment.
“If you look at the average stock of the Russell 1000, which is currently down about 10%,” he said. “Zero percent of energy names are above their 50-day moving average.”
On the energy side, Mills is particularly optimistic about EOG Resources, a shale oil and natural gas producer.
“It’s our favorite name in the energy sector. I think you can see how raw materials are starting to stabilize. You’ve seen energy stocks take a massive hit, ”said Mills. “So, I really think that this is where you should look in the future if, for example, you have a time horizon of six to twelve months.”
Mills, who manages $ 21 billion in assets, is suspicious of recent dynamics in other parts of the market.
“This knee-jerk reaction that we’re really after [June] Fed meeting when everyone came across large cap, growth and tech – it’s really this market muscle memory that I don’t think is really holding, “he said.
While Mills is bullish on cyclicals, one of his biggest underweights is Big Tech. His warning to investors: The group’s two-month jump is unsustainable, as rising interest rates will create major headwinds.
“Big Tech has responded to this really rapid decline in interest rates that we’ve seen over the past few months. I think that has now bottomed out, ”noted Mills, a CNBC employee.
On Wednesday, the benchmark 10-year government bond yield closed 8 basis points to 1.29%. On Monday it fell to a 5-month low.
Meanwhile, the major indices rose for the second day in a row and are back positive for the week. The Dow, S&P 500 and Nasdaq are about 1% off their all-time highs.
“It’s interesting that the S&P 500 is now bouncing four or five times off that upward sloping 50-day moving average,” said Mills. “The fact that we saw some strength at this technical level after Monday makes me feel pretty good.”
Disclosure: Bryn Mawr Trust owns EOG Resources shares.
Disclaimer of liability