The chief market strategist at a $5 billion firm shares 7 stocks to tactically play the market for long- and short-term gains in anticipation of a 2023 recession (2024)

"We think the economy is strong enough to withstand the rate hikes that people anticipate the Fed is going to make," said Fernandez, who serves as the Chief Market Strategist at Crossmark Global Investments, a firm managing around $5 billion in assets.

As proof of this resistance, she cited strong earnings results from firms for the first quarter of 2022. Out of the 90% of S&P 500 companies that have already reported earnings, 76% have beaten analyst expectations, and earnings have surprised to the upside by 4.8%, according to Goldman Sachs.

Fernandez also referenced the average US consumer's pandemic-induced financial wealth as another sign of economic resiliency.

"The household balance sheets are extremely strong right now. You don't really see demand declining that much versus the inflation number that we're seeing," she explained.

Still, that isn't to say that it's all smooth sailing from here on out, stressed Fernandez, who added that investors shouldn't "confuse inevitable with imminent." While she believes in the economy's robustness over the next 12-18 months, its warning signs spell a recession looming in the latter half of 2023.

Make 'opportunistic' short-term trades

Even with an inevitable recession on the horizon, investors can still strategically play the markets, said Fernandez.

"You still have to take a step back and think long term, but that doesn't mean you can't be tactical in the short term," she explained. "Because we see so much volatility in the market, we feel like there has to be some more short-term tactical plays going on."

In the short term, Fernandez actively adjusts her portfolio by "opportunistically" trading stocks with unsustainably high valuations for their undervalued counterparts.

"When the markets are up, when we have green days, we trim a little bit of some names that have moved up … [and] use that cash to pick up some of these names where we think they might be a little bit oversold or they have some opportunity," she explained. "We're not making huge swings, but we're in there nibbling."

Now that mortgage rates are on the rise again, Fernandez recently trimmed some of her position in home improvement retailer Lowe's (LOW). The stock had an extremely strong run during the pandemic on the back of the home remodeling boom, but the price has already come down as the housing market has begun to cool.

"Longer term we really like it, but there's nothing wrong with trimming your position and taking advantage of some gains in order to go into something else," she explained. "We're not afraid to take a little bit off the table in the anticipation that they're not gonna see the same growth that they have seen."

Focus on financial, retail, and tech in the long-term

For her longer-term plays, Fernandez considers firm-specific factors like growth potential, relative valuation versus peers, balance sheet, and debt ratio when selecting specific companies to invest in.

Positioning toward value stocks paid off earlier this year, but since April, Fernandez has been reducing her portfolio's overweight towards value stocks and instead pivoting towards growth and cyclical stocks due to her optimism in the overall health of US consumers over the next 12 months. Specifically, she currently likes the financial, retail, and technology sectors.

The financial sector has been held back by rate hikes and growth concerns in recent months, said Fernandez. But the sector's current pullback has actually opened up a great opportunity for investors because banks will benefit from cash-flush consumers.

"They have a really strong pipeline in regards to loan growth. As rates go up on the short end of the curve, that's actually beneficial for their net interest margin. There's a solid outlook for banks going forward," explained Fernandez, who also cited that banks' strong dividends made their stocks look even more attractive.

Within the larger banks, Fernandez is most bullish on Bank of America (BAC), having recently added to her position in the name. She also sees strong growth potential from credit card companies, specifically recently adding to her position in Mastercard (MA).

"Obviously if the consumer is strong and they're still spending and services are going to start to pick up a little bit, then credit card companies would do well there," Fernandez explained. "Households have room to add to that credit component."

In the retail sector, Fernandez recently added to her position in auto parts retailer O'Reilly (ORLY), highlighting the firm's strong growth potential. According to her, the company plans to open new locations in the US and Mexico in an attempt to capture more market share, both from retail consumers and competing businesses in the industry like auto-repair chains. O'Reilly's stock recently fell 15% after its earnings report came in a little under expectations, but Fernandez took the opportunity to increase her overweight in the name. Additionally, she also shared that she's recently bought stocks of several grocery store retailers.

Finally, Fernandez told Insider that she believes there's still merit to investing in traditional tech stalwarts versus their younger, flashier counterparts.

"We've owned all those high flying tech names, and we're not saying you shouldn't have exposure to some of those," she explained.

She continued: "But as we start to look at the economy and where we think we've got potential and where the valuations lie for some of these companies, we look at some of those old-school tech names and think there's some opportunity there." Fernandez told Insider that she's recently beefed up her positions in Intel (INTC), Apple (AAPL), and Microsoft (MSFT) but cautioned that she's not "extremely overweight" those names.