Amid hopes that inflation will continue easing, the Federal Reserve could be in position to pause monetary tightening. The prevailing wisdom is that the central bank will not raise interest rates at its June meeting. If economic data remains cooperative through the back half of 2023, it’s possible that rates will not be raised before the end of the year.
In the here and now, broader bond benchmarks look higher on a year-to-date basis. Some market observers see opportunity in U.S. Treasuries. Dan Suzuki, deputy chief investment officer at Richard Bernstein Advisors, is among the experts that see opportunity in U.S. government debt.
In a Monday appearance on CNBC’s “Power Lunch,” Suzuki extolled a preference for higher-quality asset classes that aren’t highly economic sensitive.
“This is not the time to put the petal to the metal on risk,” he said in the interview. “If profits were surging and liquidity were improving and you had a cheap market, that’s one thing. But clearly, the aspects are opposite on all three fronts.”
Indeed, with the artificial intelligence (AI) boom propelling Nvidia (NASDAQ: NVDA) to a stellar 2023 showing and with Tesla (NASDAQ: TSLA) on a 12-day winning streak, it’s understandably difficult for ordinary investors to resist temptation and flock to bland assets such as Treasuries.
However, Bernstein’s Suzuki sees value in being cautious at current levels and not chasing momentum in some glamorous high-growth stocks.
“That’s human psychology. People want to chase the thing that’s gone up,” said the strategist. “History shows that’s a bad idea. Momentum works until it doesn’t.”
Treasuries: Fundamentals Over Momentum
For investors grappling with fear of missing out on some of this year’s story stocks and trying to balance that with the notion of dialing back risk, Suzuki advocated focusing on fundamentals. On that note, the Bernstein strategist observed that current fundamentals aren’t great, including tight liquidity and elevated valuations. He added that the broader market is trading at 19x earnings, but there are some areas boasting multiples in excess of that.
Market participants looking to position for a rally in Treasuries while avoiding lofty equity valuations may find the iMGP RBA Responsible Global Allocation ETF (IRBA) to be a compelling idea. That actively managed ETF holds five other ETFs, with 39% of its weight directed to a Treasury-heavy bond ETF. A domestic value ETF accounts for 16.4% for the IRBA roster.
For more news, information, and analysis, visit the Richard Bernstein Advisors Channel.