Joe Amato on Second Half Market Outlook: Value in Small Caps & Non-U.S. Equities

Market Rotation and Value Opportunities

• 🎯 A significant rotation out of high-multiple sectors like tech and AI into lower-multiple sectors occurred around July 1st.
• 💡 The speaker believes the real value lies in rotating into value stocks and small caps, which have underperformed in the first half of the year.
• ⚠️ While acknowledging the need for some exposure to large-cap tech, the focus is shifting towards areas with better value.

Overweighting Small Cap and Non-U.S. Equities

• 📈 Neuberger Berman is overweight small cap and non-U.S. equities due to their underperformance in recent years and perceived better value for the second half.
• 🌍 Non-U.S. markets, particularly Europe and Japan, are attractive due to fiscal stimulus and strong corporate governance improvements, respectively.
• 📉 A weakening dollar is seen as a facilitating factor for capital flows into international markets and is expected to continue grinding lower.

S&P 500 Valuation and Sector Focus

• 📊 The S&P 500 at current multiples is seen as discounting a lot of good news, making the firm more cautious on large caps.
• 🧩 The focus is on the rest of the market outside the top-performing tech companies, where multiples offer more value.
• 🚀 Pro-growth policies and deregulation are expected to benefit small and mid-cap stocks significantly.

Financials and Tariff Uncertainty

• 🏦 Financials are viewed favorably due to potential for less stringent regulation, improved capital returns, and an improving economic outlook.
• ⚠️ Tariffs represent a significant wildcard and headline risk, particularly concerning upcoming negotiations with Japan and China.
• 💬 While rhetoric on trade has improved, the actualization of deals remains uncertain, creating market volatility.

Investor Sentiment and Flows

• 📈 Retail investors showed less panic regarding tariff situations compared to institutional investors during recent market downturns.
• ✅ This resilience in retail sentiment is seen as encouraging, suggesting a potential for continued investment.