Northwestern’s Schutte Says Forget Meme Stocks, Stick With Value

(Bloomberg) -- Brent Schutte says stock investors can have a good first half and maybe all of 2022 if they hold onto value companies and abandon the risk-on world of “hopes, dreams, themes and memes.”

“The market has legs to go higher,” the chief investment strategist at Northwestern Mutual Wealth Management Co. said in an interview Tuesday on Bloomberg TV’s Surveillance. “You have seen value stocks have held up well. Hopes, dreams, themes and memes, some of those things that didn’t make sense, that were bid up on excessive monetary policy, they’ve deflated more than 50%. I think you continue to see that throughout the year.”

Schutte says his assessment is based on anticipation there’s “better news on Covid, inflation does pull back as we shift more from goods buying to services buying, and I think that allows the Fed to be just a little bit less aggressive than the market is pricing against an economic backdrop that is still strong.”

“The market will have to normalize,” he said. “That means that part of the market that hasn’t done as well will do better as real interest rates move higher.”

While many money managers anticipate the S&P 500 Index will rise this year, the gain is forecast in the single digits after an increase of almost 27% last year. So far in 2022, the gauge is down 1.7%, compared to a drop of 4.4% for the S&P 500 Growth Index, which outperformed its Value counterpart the past three years.

The S&P 500 Value Index, which typically contains stocks that trade at a price lower than its fundamentals would suggest, has advanced 0.7% since Jan. 1. 

‘You are seeing value stocks hold up quite well,” Schutte said. “We’ve been overweight more the value, the small, cheaper parts of the market for some time, and we’re going to continue to be overweight those parts of the market probably to the middle half of the year.”

Schutte expects the market to have a “pretty good” first half. “Then we think looking and thinking about do we want to bring our own equity ratio down to reflect the fact that a lot of the easy money has been made. I still think the economy has legs into 2023 because I think productivity is the unsung story that keeps us going in 2023, 2024, but certainly the risks are rising.”

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