- Investors should target high-quality stocks with a recession coming, according to a Wells Fargo strategist.
- "Move into larger cap, higher quality US equities – we like the energy, materials and healthcare sectors," Sameer Samana told Yahoo Finance.
It's time for equity investors to adopt a defensive approach - they should load up on high-quality energy, materials, and healthcare stocks while staying cautious on tech with a recession looming, according to a Wells Fargo strategist.
Sameer Samana said Wednesday that he believes the US economy will slip into a moderate recession in the latter half of the year — and "that means that at least right now, you should be playing defense."
"Move into larger-cap, higher-quality US equities," Samana, senior global market strategist at the Wells Fargo Investment Institute, told Yahoo Finance. "We like the energy, materials and healthcare sectors."
Large-cap stocks have been some of the market's best-performing names this year – because the sector is so highly concentrated around tech, which has benefited from the explosion of interest in artificial intelligence and the Federal Reserve easing up on its interest-rate hikes.
Those gains have come despite many analysts fretting about a looming economic slump, with US GDP growth slowing to just 1.1% in the first quarter and yet to feel the full force of the Fed's tightening campaign.
"We will continue to favor larger-cap, higher quality US companies. That area has actually done the best this year because a lot of the tech companies kind of tend to sit in that catbird seat," he said.
But Samana cautioned against loading up on mega-cap tech stocks only without diversifying into other sectors, likening the AI buzz to the dot-com boom in the late 1990s.
While AI is bound to be a transformational technology – just like the internet was – there is no way of knowing which companies will come out on top, he said.
"Price is running ahead of expectations," the strategist added. "Tech should be a neutral weighting within client portfolios."