Is a recession on the cards? Market watchers are split on whether the U.S. economy is headed toward a downturn. But investment manager Kingsley Jones believes a downturn of some form is now inevitable. “We have to accept that a recession of some form is a given now,” Jones, founder and chief investment officer at advisory firm Jevons Global, told CNBC’s “Squawk Box Asia” on Monday. He flagged that a growing number of commentators are now expecting the next GDP print — due July 28 — to show that the U.S. has fallen into a technical recession, or two consecutive negative quarters. As such , Jones said he is expecting more volatility ahead, with earnings downgrades likely to occur as reporting season kicks off this week. Stock picks for a volatile third quarter Against this backdrop, Jones believes that investors should favor stocks with pricing power and strong margins. Crucially, he said investors should only put their money into areas of the market where there are clear signs of structural shortage. “Buy safer areas of the market like large-cap pharmaceuticals, energy stocks, and food-related stocks. Continue to hold quality large-cap tech but stand back in cyclical areas like semiconductors,” he added. Jones’ top picks within the health care and pharmaceutical space are U.S. insurance giant UnitedHealth and drugmaker Merck & Co . “We also like energy [stocks]. Notwithstanding the recent retreat, we still have oil hovering around $100 a barrel. The big oil companies are making very good profits at these levels, not to mention the refiners,” he said. Within the energy sector, Jones likes Australia’s Woodside Energy and shale producer Chesapeake Energy . Other favorite sectors include food, grains and fertilizers. “We didn’t see a big rally in those early days immediately after the war started in Ukraine, but I think they’re now pretty cheap. We will be looking to step back in and top up our existing holdings,” he said. His top picks in this area are food company General Mills , Chicago-based food processing giant Archer Daniels Midlands and Canadian fertilizer company Nutrien . Recession signals There are a number of key metrics that investors are watching closely for signs of a recession. “Whether we go into a severe recession really depends on the strength of consumer demand,” Jones said, noting that consumer sentiment has been poor due to rising prices. Read more These global stocks have a track record of earnings growth — and analysts love them Has the market hit the bottom? Goldman’s Oppenheimer reveals where he sees ‘great opportunities’ Morgan Stanley names its top stocks in a ‘safe haven’ tech sector — giving one upside of 60% The so-called yield curve inversion is adding to recessionary signals — it has historically preceded recessions and is viewed by many as a warning sign. Last week, the 2-year U.S. Treasury yield rose above the 10-year yield for the second time in this year’s bear market. Many market participants are also keeping a close eye on the U.S. labor market for further recessionary signals. The state of the jobs market is seen as an indicator of an imminent recession, but for now, it appears that the jobless rate remains low, while job offers appear robust, Jones said. “There are no clear signs that employment is deteriorating, which would of course be the big risk for a deeper recession,” he said.
Fund manager: Stock picks to navigate a recession – CNBC