Stock market investors are calling time on the idea that the Federal Reserve, and other major central banks, have their back.
Hopes for interest rate cuts by year-end have evaporated, given resilient data and sticky inflation, suggesting central banks will instead be inclined to keep borrowing costs around their highest since 2007 for some time.
The take away for money managers? Switch from so-called growth stocks, such as tech, and focus on businesses that can withstand the end of cheap funding -- banks that benefit from higher rates and resources and consumer staples businesses that can sell goods at prices that match inflation.
Companies that pay high dividends relative to their share prices, instead of investing in growth, are also favoured.
"For years, we've had a capitalist world that was highly dependent on central-banking policy and the 'Fed put'," said Gerry Fowler, head of European equity strategy at UBS, referring to the concept of central banks supporting financial markets any time economies turn lower.
European banking stocks (.SX7E), considered a deep value investment because of relatively low price-to-earnings ratios and higher dividend yields, have jumped 24% this year.
Global equity income funds had their first annual net inflows last year since 2014, according to Morningstar data, a trend that has continued into 2023.
Shares in tech firms, which dominate world equity markets and rely on cheap money to fund innovation, had a strong start to 2023 on hopes that aggressive rate hikes would soon end as the economic cycle decelerated.
The Nasdaq (.IXIC) is still up about 12% year-to-date and a sub-index of European tech stocks has gained 15% (.SX8P). Still, these rallies lost steam from February with a build-up of strong U.S. jobs and consumer data and as euro zone inflation stayed high.
