Asia markets set for gains, all eyes on Fed decision

Residential buildings in Hong Kong, China on October 23, 2023.

Vernon Yuen | Nurphoto | Getty Images

Investors should stay defensive as the year end approaches, according to Dubravko Lakos-Bujas, chief global equity strategist at JPMorgan.

The strategist said that the lagged effects of the Federal Reserve's interest rate hikes will be more dramatic than traders are currently expecting, and urged investors to hold cash and move into more resilient parts of the market. He favors utilities and health care, as well as dividend aristocrats.

"I think there's just a lag effect," he said Tuesday on CNBC's "Halftime Report." "And this time around in this cycle, the lag simply may be longer than what we're accustomed to sort of seeing in the prior cycles because of the unprecedented injection that we've got during Covid, and because of a relatively healthy starting point for things like balance sheets."

His 4,200 year-end target for the S&P 500 is just a little above where the S&P 500 closed Monday, according to the CNBC Market Strategist Survey.

— Sarah Min

Tesla is down 20.5% in the month of October and 33.5% since its 52-week high in mid-July to lead this month's declines in the Magnificent Seven group of megacap tech stocks. Nvidia has fallen more than 7% in October and is down roughly 20% since its late August high. Alphabet is off 5.8% in October and 12.7% since its mid-October peak. All three have underperformed the 2.5% decline in the S&P 500.

Apple is about 1% lower in October but more than 14% below its mid-July high, while Meta Platforms is little changed this month but more than 9% lower than its mid-October high reached just a couple of weeks ago.

Only two of the Mag 7 are significantly higher this month: Microsoft is up about 6.8%, limiting its loss since its mid-July high to about 8%. Amazon has advanced 4.4% in October, cutting its loss since its mid-September high to about 9%.

Tesla in October.

The Federal Reserve will likely face a "bumpy path" to its 2% inflation target, even if it decides to keep rates steady at its November meeting, according to Joe Davis, chief global economist at Vanguard.

"Inflationary pressures and broader macro trends are heading in the right direction, but last week's GDP report and a still strong labor market highlight the bumpy path the Fed faces on the road to their 2% target," Davis said in written commentary. "We believe 1-3 more hikes will be needed for them to confidently achieve their goal over the next few years."

In fact, the economist said rates will likely be restrictive for longer. He also said the higher neutral rate policymakers will land on after cutting rates will be closer to 3.5% than the anticipated 2.5%.

"The market is finally acknowledging this, which has been one source of some of the recent market volatility," Davis wrote.

— Sarah Min