Wall Street Week Ahead: As earnings loom, investors weigh recession resilience

economictimes.indiatimes.com:

While the benchmark S&P 500 has gained nearly 15% year-to-date driven by a handful of megacap growth and technology names, some sectors have lagged, including the S&P 500 healthcare, which is down 4.7%. The financials sector is down 2%, while energy is nearly 9% lower. These unloved sectors are growing attractive to investors increasingly torn over whether a long-feared U.S.

recession will ever materialize. Global fund managers increased their allocations to healthcare and banks by about 5 percentage points in June, while cutting holdings of popular recession plays such as cash and consumer staples companies, BofA Global said. Large asset managers such as BlackRock and Wells Fargo highlighted healthcare as a favored sector in their recent outlooks for the rest of the year.

Some large banks have improved their U.S. economic outlooks, with Goldman Sachs cutting the chance of a recession within the next 12 months to 25% from 35%. The Commerce Department, meanwhile, increased its estimate for first-quarter Gross Domestic Product growth to an 2% annualized rate from its initial 1.3% estimate.Quincy Krosby, chief global strategist for LPL Financial noted a «tug of war» in the market over the likelihood of a recession.

«But until we hear from companies that they are cutting their labor force, then we think that we will not have a dire earnings season and some of these lagging sectors will become more favorable,» she said. The U.S. economy added the fewest jobs in 2-1/2 years in June, but persistently strong wage growth pointed to still-tight labor market conditions, new data on Friday showed, all but ensuring the Federal Reserve will resume raising interest rates later this month.