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CONFIDENCE HAS BEEN SHAKEN BUT HAS THIS STIRRED UP OPPORTUNITIES?

With uncertainty soaring around Washington policy and its impact on growth, Lisa Shalett, chief investment officer and head of the Global investment office at Morgan Stanley Wealth Management, is espousing a cautious approach.

"Confidence matters to consumption and investment, and it has been severely shaken, leading to lower GDP forecasts, as rising inflation expectations and stagflation potential cloud the soft-landing thesis," wrote Shalett in a recent report.

But while many hope the bull market can resume on a "pivot to deregulation and tax cuts," Shalett sounds skeptical. She's questioning the stimulative power of tax cuts "as political and economic realities suggest limited progress on 10-year debt and deficit forecasts."

First, she notes that Republican budget forecasts assume $1.5 trillion to $2.0 trillion in savings over 10 years "with most of that likely needing to come from politically sensitive areas like Medicaid."

Second, she writes that the idea that tariffs will bring higher US revenues seems to include "little discussion of global-retaliation offsets."

And with the "fiscal drag likely to weigh on earnings estimates, the S&P 500 is still not broadly cheap, despite improved risk premiums."

And so Shalett suggests "being opportunistic by adding stable growers in software, health care and consumer services, such as media."

Also, she recommends considering cyclicals like financials while diversifying regionally - in emerging markets, Japan and select European names - by "exploiting shifting momentum outside the US and dollar weakening."

(Sinéad Carew)

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