J.P. Morgan Asset Management's chief global strategist sees positive conditions ahead for stocks, although valuations for companies that have led this year's rally cause some concern.
"I look at valuations a lot. I do worry about the mega-cap stocks that have really led this charge. But overall it could be pretty good," David Kelly said Wednesday on CNBC's "Power Lunch," responding to a question about the path for stocks in the next six months to a year.
"The key point is eventually inflation's going to get back down to where we were in the last decade. It's going to get back down to 2%. Eventually the Fed's going to have to react to a recession and cut rates back down again. And so you get back into a slow-growth, low-inflation environment in which companies are very good at maintaining margins," Kelly, who also heads the firm's Global Market Insights Strategy team, said.
"U.S. companies can do well in a cold climate; I think the stock market's taking some comfort from that," he added. The Fed may have to cut rates in 2024, he said, noting that economic soft landings don't last forever.
Kelly suggested investors stay in parts of the market that didn't participate in this year's first-half rally and are just starting to show signs of life.
