It has been an eventful week for markets following the U.S. Federal Reserve’s 50 basis point rate cut last week and the Dow Jones and S & P 500 benchmarks hitting record highs on Tuesday. As investors mull over how to play the market, Peapack Wealth Management’s David Dietze revealed where and what he is betting on right now. “There’s a lot of fundamental drivers that are playing well for this market,” the managing principal and senior investment strategist at the U.S.-headquartered asset management firm told CNBC’s “Street Signs Asia” on Wednesday. Dietze’s comments come after the S & P 500 and Dow closed at record highs after gaining 0.25% and 0.20%, respectively on Sept. 24. The Nasdaq Composite gained 0.56% and is less than 4% from its record high. All three averages are on track for a positive September, despite the lingering fears of a slowing economy after last week’s rate cut. “What we got last week is very rare to have a change in Federal Reserve policy that close to the election. The last time we saw that [was] in 2008 when we were in the deep throes of the financial crisis, that was justified,” the veteran investor said. He expects the Fed to cut interest rates further by 25 to 50 basis points in November and December. Against this backdrop, Dietze’s said his investment strategy involves evaluating the health of companies based on their upcoming results for the third-quarter. “I always look at earnings as the most important reason why you buy a stock, and we’re forecasting a big spike in earnings by Q4. [In] 2025, we’re looking at a 14% jump in earnings.” Favorable valuations Small-cap stocks are one area Dietze is watching closely, given that they are trading at a “discount.” Interest in small-cap stocks picked up in July and while the outlook has been mixed, he likes that “valuations are favorable” right now. The Russell 2000 index – which captures the performance of small-cap companies in the U.S. that derive most of their revenues domestically – is up 9.5% year-to-date. “Technicians point to small caps outperformance upon [Fed Chair Jerome] Powell’s declaration that the time has come for rate cuts, with small caps up 3% on overwhelming volume rarely seen before,” Dietze wrote in notes to CNBC. Emerging markets Another popular segment Dietze is focusing on is emerging markets, thanks to the potential from their rapidly growing population numbers. Countries classified as emerging markets include China, India, South Korea, Taiwan and Brazil. Year-to-date, the MSCI Emerging Markets Index is up 0.56%. “Eighty-eight percent of emerging market economies are expected to grow their economies faster than the US,” Dietze said, adding that the markets are also “trading at a sharp discount.” However, he is concerned about China’s deepening economic slump , for it may hold back the appreciation of indexes since it is a major component. Stocks to watch Beyond his sectoral focus, Dietze named U.S. pharmaceutical Bristol-Myers Squibb , Australian mining player BHP Group and confectionery manufacturer Hershey as three under-the-radar companies he is betting on right now. — CNBC’s Jesse Pound contributed to this report.
