- Quincy Krosby, the chief market strategist at $1.2 trillion Prudential Financial, says traders need to stay flexible as the investing world tries to figure out the trajectory of the US economy.
- Krosby says cyclical stocks like industrials and defensive stocks like utilities are both poised for gains, but advises that investors shouldn't neglect one or the other.
Investors should stay balanced and work the barbells even if their New Years' resolutions to get fit are a distant memory.
That's the top recommendation from Quincy Krosby, the chief market strategist for $1.2 billion Prudential Financial. She sees a lot of opportunities for stocks exposed to economic growth, but suggests investors carefully balance out any additional risk they take on because the trajectory of the economy and market is so unclear.
"It's a very clean barbell strategy," she told Business Insider. "On the one hand, I'm cyclical. On the other, I'm protected in the event of a downturn."
Since barbells are supposed to hold equal amounts of weight on both sides, a so-called barbell strategy refers to one that's equally balanced.
On the cyclical side, Krosby said she expects good returns from industrial companies, especially defense stocks.
"Defense spending is up globally," Krosby told Business Insider in a recent phone interview.
Krosby is more cautious about big technology companies based on their years of outperformance, but said communications equipment and software companies are some of her top picks. She adds that insurance firms offer the most opportunity among financial stocks.
Read more: Investors focused on themes are making 5 big mistakes. Here's how UBS says they can be avoided.
While she isn't avoiding many sectors, she sees little to like about automakers absent signs of economic improvement - but says she would reconsider if those signs emerge.
On the other side of the barbell, Krosby is also recommending that investors emphasize defense, and focus on companies with strong cash flows and hefty dividends. She expects health care stocks and utilities to outperform.
"When you look at that, utilities and tech working their way higher, it's almost as if the market has hedged itself," she said.
That's the essence of the balanced strategy. And she's not the only one recommending it as the investing world looks for clues about what comes next.
The S&P 500 has jumped 12% in 2019, which may seem like a sign of enthusiasm from investor. But, at the same time, they've been steadily pulling money out of the market for most of the year. Even when some money did pour into equities in mid-March, those inflows were almost immediately met with a big warning about a recession.
With that lack of clarity it's easy to see why Krosby is suggesting investors stay patient. But she's not expecting a US recession, and if stronger data does emerge, she says small- and mid-cap stocks are poised to climb. She sees a similar scenario unfolding in China, to the benefit of emerging markets.
"A weakening US dollar would be a catalyst for increasing allocation toward emerging markets," she said. "If China can stabilize its economy and grow its economy ... that's very good news for emerging markets. It's good news for Europe."