Stocks traditionally do well under higher rates: Strategist

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Portfolio managers may have to adapt and revise their interest rate forecasts as it is increasingly likely the Federal Reserve may extend its higher-for-longer hold on rates. With a waning rally from the S&P 500 (^GSPC) in 2024's second quarter, where are the entry points into the market investors to consider when managing their portfolio?

BMO Capital Markets Chief Investment Strategist Brian Belski joins The Morning Brief to discuss elevated interest rates remaining higher for longer may actually be in the best interest of investors and how they can take advantage of it.

Belski offers advice he thinks investors should be aware of: "We think that most investors are massively underexposed [to] small and mid-cap [stocks]... If you had $100, only $8 out of that $100 is comprised of small/mid-cap stocks that are publicly traded [and] based in the United States, that's Apple (AAPL) and half of Microsoft (MSFT). Think about that. If you're a stock picker, right? You're salivating at that because then you can say I can have tracking my portfolio and add some really great small/mid-cap franchises... From a large-cap perspective, we like tech and financials, and it's not all Magnificent Seven, because the Magnificent Seven is not all tech stocks..."

For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.

This post was written by Nicholas Jacobino

Video Transcript

SEANA SMITH: You got to take a look at the S&P 500 because it's dropped just about 4% this month as investors worry about the Fed potentially delaying its first rate cut. Despite though, those recent concerns, we've got our next guest. Who says they higher for longer scenario actually isn't necessarily bad news for stocks. Brian Belski joining us here at the desk. BMO Capital Markets chief investment strategist. So Brian when everyone's worried about it, you can see it clearly reflected in the market. But maybe it's not necessarily bad news.

BRIAN BELSKI: It isn't, Seana. Thank you so much for having us. Good morning, Yahoo. It's just great to be here with the Smiths. We became a little bit more cautious on a near term basis about six weeks ago and several people questioned, you're not bullish anymore? No, no, no, we're bullish. And in fact, 12 years ago, today we launched US strategy product at BMO. And we said, listen, stocks have entered a 25 year secular bull market. And that call remains the same. However, we do believe that momentum and the FOMO trade, and got a little bit ahead of itself.

I think the key thing that you said in your preamble was earnings remain the litmus test, the key. And from a fundamental perspective, earnings are stronger than everybody thought. I think most people I know, most people thought, we were heading into this March cut. I think the last time I was on your network, I talked about, I saw no analytical evidence that we're going to see some a March cut. But yet so many people are so macro focused. And that they're looking at Fed funds futures and giving Fed funds futures so much credit.