Cyclical, financial and energy stocks still have room to grow this year when the U.S. Federal Reserve (Fed) is due to hike rates faster and more than expected to tame inflation, said chief investment officer at NYLIM that manages assets worth 700 trillion won ($583 billion).

One of major downside risks in the stock market is uncertainty over the Fed’s tightening move, said Jae Yoon, NYLIM CIO.

“The market is bracing itself for worse,” waiting for the Fed’s decision on rate hikes that were earlier projected to take place late summer this year but is now forecast to happen as early as March this year, said Yoon.

But the Fed may restrain itself from making any bold movement during its first FOMC meeting scheduled on Jan. 24 and 25 because it does not want to shock the market, he added.

Under the current circumstances, cyclical, financial, and energy stocks have more room to grow maybe until the third quarter of this year, recommended Yoon, adding that those companies benefited from the years long stay-at-home restrictions during the pandemic, such as Netflix and Peloton, would not rise further. In the post-Covid-19 economy, consumption may explode in the travel and restaurant sectors, he said.

Inflation is expected to stay high until the second half of this year despite the Fed’s tightening measures, so financial stocks are attractive investment choices to hedge inflationary pressure, Yoon said. He also forecast oil prices would go up to $100 per barrel even after its recent hike to $80 amid the Omicron wave.

Yoon expected that small and mid-cap stocks still have high upside potential. He advised that investing in the S&P SmallCap Index with mid-cap stocks would be a better choice than the Russell 2000 Index. He added that it would be a lucrative investment although the US economy has made a downward curve.

He also suggested that the decline in the market would be an opportunity to buy high-quality tech stocks at their bottoms. Tech-shy investors may consider buying for long-term gains in the future.

By Kang In-seon and Jenny Lee

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