Argus's Favored Classes, Segments

Stocks rallied again in November on hopes for lower interest rates, yet remain in a bear market for the year. Bond prices also rose during the month, but, as with stocks, remain lower year-to-date. Looking ahead, our Stock-Bond Barometer model modestly favors bonds over stocks for long-term portfolios. In other words, these asset classes should be near their target weights in diversified portfolios, with a slight tilt toward fixed income, given the rise in yields in 2022. We are now balanced on large- and small-caps. We favor large-caps for growth exposure and financial strength, while small-caps are selling at historical discounts relative to large-caps and offer value. Our recommended exposure to small- and mid-caps is now 15%-17% of equity allocation, in line with the benchmark weighting. U.S. stocks have outperformed global stocks over the trailing one- and five-year periods. We expect this long-term trend to continue, given volatile and often difficult-to-predict global economic, political, geopolitical, and currency conditions. That said, international stocks offer favorable near-term valuations, and we target 5%-10% of equity exposure to the group. Value has outperformed in 2022 due to the negative impact of rising interest rates on growth valuations. Over the longer term, we anticipate that growth, led by the Tech and Healthcare sectors, will top returns from value, led by the Energy and Materials sectors, due to favorable secular and demographic trends.