Fidelity’s chief quantitative strategist said the next six months could be the exact opposite of the market’s continued slump. She explains why she is optimistic about stocks and bonds, especially values.


  • Denise Chisholm is Fidelity’s Director of Quantitative Markets Strategy.
  • The combination of falling stock prices and solid earnings is optimistic, she says.
  • Chisholm spoke to Insider about the most important market signals he is currently tracking.

There are no guarantees on the investment, but Fidelity’s top quant strategist says many market signals look promising after the stock’s brutal expansion.

The S&P 500 is down more than 18% since the beginning of the year and has been gearing up for a bear market over the past few sessions. Denise Chisholm, director of quantitative market strategy for a $4.28 trillion company, said throughout market history that declines like this could be divided into two groups.

It becomes a problem when both prices and corporate profits fall. But Chisholm says the combination of falling valuations and strong returns, as we’re seeing today, almost always yields good returns for stagnant investors.

“If you’re willing to break through the lows next year, the market is very likely to grow with very strong returns, given the fact that returns have been very strong,” she said in a recent interview. “With really strong double-digit returns, it’s very likely that the market will advance 90% or more,” she said.

Chisholm says there is a huge gap between what investors are willing to pay for the most expensive stocks on the market today and their value.

By these standards, she says, the cheapest value stock on the market hasn’t been this cheap since at least 1990. Value stocks in industries like banking and energy have generally outperformed the more expensive names in the tech space since November 2020, and Chisholm could see value lead the market for years to come.

She explains that the gap is a temporary sign of excessive fear that it will resolve itself.

“There is more value in this cycle than most other cycles in the past 20 years,” she said, adding that the 12-month S&P 500 yield averaged 18% due to a valuation gap like the one she sees today. In this environment, she adds, small-cap stocks generally outperform large-cap stocks significantly.

Chisholm told Insider that compared to the rest of the stock market, energy stocks haven’t been this cheap in 60 years, despite outperforming them dramatically in 2022. This is because earnings estimates are still very low despite rising commodity prices. strong demand.

“Despite outperforming what we’ve seen, there could be a far more lasting performance in value, energy and potential financials,” she said.

Chisholm says the bond market has good reason to be bullish, given that bond yields and long-term interest rate expectations are nearly flat. This suggests that better returns are on the way.

“In fact, it could be the exact opposite of what investors have seen in the last six months,” she said. “It can be positive.


volatility

In both asset classes, where bonds provide strong returns and stocks provide returns.”

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