Are we still in a bear market rally? Citi’s Kristen Bitterly explains

Investors should take the year-to-date rally in the equities market with a grain of salt, says Kristen Bitterly of Citi Global Wealth Management.

Why is she cautious on the U.S. stocks?

On CNBC’s “Squawk Box”, Bitterly argued that the recent strength in U.S. stocks could create more room for the central bank to remain hawkish, which spells more pain ahead for the equity investors.

Nonetheless, she continues to expect a 25 basis points increase in interest rates next month.

25-bps is on the back of 450-bps last year in addition to $450 billion in liquidity taken out of bond market. A lot of this cumulative medicine Fed is injecting hasn’t been seen in earnings yet. So, we’re playing defense and are cautious.

S&P 500 broke above the key 4,000 level today after House Democrats proposed eliminating debt ceiling (read more).

Fixed-income vs stocks: Bitterly picks a side

Bitterly prefers quality fixed-income assets over equities for now. Explaining what could change that stance, she said:

For us to take on significant positions on the equity side will require either a big change in the employment backdrop or a big change in inflation – neither of which we anticipate would happen over the next couple of months.

Bitterly does not expect consumer prices to return anywhere close to the Fed’s 2.0% target this year. In December, they were up 6.5% on a year-over-year basis.

On the equities front, she’s sticking to healthcare and global pharma; sectors that are known to do well in a recession. Even within these, she recommends the dividend aristocrats.

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