Crunching the Market:Barclays Capital

As liquidity,or various forms of government intervention,gets withdrawn from the market by central banks,there will be lower lows and lower highs.By the time we get to rate hikes,the process should be complete,in the view of Barry Knapp of Barclays Capital.The process started with Chinese tightening.A recovery starts with government stimulus,then moves on to inventory restocking,eventually resulting in hiring.
Barclays is selling cyclical stocks and buying defensives.Cyclicals are companies that rely on robust growth,such as industrials,energy and materials firms.Defensives are in areas that are less economically sensitive,such as consumer staples and health care.In the current case,however,industrials are just starting to recover.As a rule,during a period of adjustment to stimulus withdrawal,defensive stocks are likely to outperform.Many analysts expect the Federal Reserve to raise interest rates in the second half of the year,a major step in the transition process.