(Bloomberg) — The writer of Jefferies LLC’s weekly “Greed & Fear” newsletter has advice for both the greedy and fearful.
Christopher Wood, global head of equity strategy, says there’s still juice left in a stock rally that’s driven gains of 20% in the S&P 500 this year. He warns the economic recovery could come with sticky inflation, but not so much it will goad the Federal Reserve into higher rates anytime soon.
It’s a scenario that will keep stocks elevated on either side of the spectrum — those tied to the economic cycle and more defensive large caps.
“I think you should own both kinds of stocks,” Wood said in an interview with Bloomberg TV. He recommends a barbell strategy to play to both.
“My bias is that the inflationary pressure will prove to be more longer-lasting which is why you want to own some cyclical stocks,” Wood said. “But I don’t believe G7 central banks will politically be able to tighten policy in a meaningful manner. That will continue to support growth stocks.”
He’s not alone in staking out the middle ground in a rally that’s powered the S&P 500 well past Wall Street’s year-end forecast. The past week has seen bulls downgrade their forecasts, warning the winning streak may be about to break, and bears issue less-bearish calls.
Read more: BofA’s Subramanian Dumps Dire S&P 500 Call After Big Rally
For now, Wood’s ideal portfolio has no place for the bonds of Group-of-Seven nations. He would change tack should another virus variant emerge beyond the control of vaccines that could send benchmark Treasury yields back to pandemic-era lows of 0.5%, versus around 1.3% currently.
“You should not own any bonds in the G7 world unless you believe there is going to be a Covid strain that is vaccine resistant,” he said.
(Updates with bond yields in penultimate paragraph)
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