The Federal Reserve is driving the market bus. Rate cut expectations have been re-drawn, and the “buy everything” sentiment that powered equity indices higher in the final quarter of 2023 is over. This is now a stock picker’s market.
These are the thoughts of Marc Chaikin, founder and CEO of Chaikin Analytics, who appeared Thursday on Benzinga’s Pre-Market Prep.
“The Fed is driving the bus and we got some clarity from Governor Waller into what Chairman Powell is really thinking, and they see no reason to rush rate cuts. So those wild forecasts of five to six cuts this year are pretty much off the table,” Chaikin said.
He added: “It’s not going to be a ‘buy everything’ market in 2024.”
“That happened when investors realized back in October that rate hikes had finished, and just threw money into exchange-traded funds, mainly the SPDR S&P 500 SPY and the Invesco QQQ Trust QQQ, which tracks tech stocks on the NASDAQ.”
Still Bullish On Stocks
He remains bullish on stocks, however, and sees support for the S&P 500 around the 4,700 and 4,680 levels.
So, it’s going to be a stock picker’s market, he believes, and although it was tech stocks that powered the final quarter rally in 2023, he still sees value in the sector.
“What’s interesting is that tech stocks have not been pressured by the higher rates in the 10-year Treasury yield — in the last 18 months that has been a very direct relationship — the 10-year yield moves up and tech stocks get pressured because of p/e valuation concerns, and that hasn’t been the case,” he said.
But in tech, he’s not looking at the mega-cap stocks. Software is not quitting, he says, and sees value in Synopsys SNPS, the maker of software used in the semiconductor industry.
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“It’s all about semiconductors, with AMD AMD and Nvidia NVDA making new highs, and Synopsys has taken a lot of heat for its merger with Ansys ANSS. These are two great companies combining. Synopsys is well positioned to support the semiconductor market,” he said.
The Synopsis share price, which started to decline after mid-December, has fallen further since it announced this week it was buying Ansys for $35 billion.
“The debate about whether they’re paying too much for Ansys or not will dissipate over the next year. I think Synopsys is a steal down here,” he added.
Biotech ‘On Fire’
Chaikin also likes biotech in the healthcare sector, which he says “is on fire.”
“I’m looking at stocks such as Gilead Sciences GILD, which has been pretty dormant for the last two years. I’m looking at the bigger names like Regeneron Pharmaceuticals REGN where there’s long-term visibility into their products pipeline.”
Chaikin says that there are a lot of biotech stocks — “it’s a fruitful area.” He also likes CVS Health Corp CVS.
“It’s a buy here. We recommended it last week in one of our newsletters — I just like their business model.”
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