J.P. Morgan Private Bank’s Stephen Parker is highlighting three groups that could outperform as interest rates climb.
His first top pick: energy.
“If you go back and look historically near the end of a cycle, energy has almost always outperformed and often times by a pretty meaningful amount,” the bank’s head of thematic equity solutions said on CNBC’s “Trading Nation.” “The reason for that is you tend to see a pickup in inflation.”
His thoughts came on Wednesday shortly after the Federal Reserve announced its second interest rate hike of the year and suggested two more increases are still possible.
According to Parker, the Fed’s intention to raise rates multiple times in 2018 also bodes well for financials — particularly regional banks.
“Obviously, there’s the trade on higher rates,” Parker said. “They are also big beneficiaries of deregulation [and] tax cuts. I think you could also start seeing as a result of this deregulation, a pickup in M&A activity in which these regional banks could be attractive targets.”
For his third pick, he favors emerging markets. Despite pressure from a rising dollar, Parker said some emerging economies are showing much more resilience than previous cycles.
“When you look for example at emerging Asia, one of our favorite regions, that’s actually still up for the year,” Parker said. “If we were to see a meaningful rally in the dollar, certainly that would impact sentiment negatively. But we think this weakness is an opportunity to get in.”