David Garrity on CNBC’s “The Rundown” — Why more hikes won’t kill US economy

US market outlook

Against a backdrop of declining corporate profitability and gradually tightening U.S. monetary policy, we expect the performance of the S&P500 index to be limited at best to a retest of the 52-week high of 2,135. Investors should be cautious as the primary source of support for broader equity market appreciation is corporate stock repurchase programs, something that will eventually prove susceptible to decrease as corporate cash flow growth slows. Furthermore, the uncertainty associated with the 2016 U.S. presidential election is likely to result in weaker-than-seasonal performance in the run-up to the party nominating conventions this summer with a relief rally expected in 4Q16.

FOMC statement- impact on markets

As the market has appropriately anticipated that the Federal Reserve would leave the discount rate unchanged, we look for only a modest reaction to the FOMC statement. Near-term economic data (e.g. ISM, industrial production, weekly employment) indicate U.S. economic activity is not accelerating. Also, inflation measures while rising, still remain well below the Federal Reserve’s target levels. In our view, the Federal Reserve may not move next to increase interest rates until June. Note this may be the last interest rate increase for 2016 as the Federal Reserve historically has left monetary policy unchanged ahead of presidential elections.

Investment strategy

With decelerating profit growth we are drawn to total return investments such as dividend paying stocks for companies with strong financial position. In this environment, we believe that growth-at-a-reasonable-price (i.e. GARP) is a reasonable strategy to pursue.

Top picks/sectors

The technology sector remains attractive, specifically more mature dividend-paying companies (e.g. MSFT, INTC, AAPL).