“Our main takeaway was to lean a little bit more into value and trim some of our growth exposure,” Shue, the firm’s head of investment strategy, told CNBC’s “Trading Nation” on Wednesday. She helped build her firm’s second-quarter strategy, which embraces value and cyclical stocks.
On the first quarter’s final day, the tech-heavy Nasdaq Composite rallied more than 1.5%. Year to date, it’s up nearly 3%. However, the index is off almost 7% away its all-time high.
“We are not adding to equities today, but we are rotating underneath the surface to take advantage of some changing dynamics in market leadership,” she said.
Overall, the firm is sticking to an overweight to stocks. Her playbook’s top picks include S&P 500 groups highly leveraged to the economic rebound: financials, industrials, materials and energy, which was the first quarter’s best performing S&P 500 group. Energy surged 29% in that time period.
“We expect economic growth to accelerate very rapidly over the next few months and into the end of the year,” said Shue, who oversees almost $136 billion in assets and is a CNBC contributor.
However, Shue warned that a lot of the good news may already be priced into the market.
“I wouldn’t be terribly surprised to see the equity market pause a bit,” she said. “Going forward, it’s going to be a question of how much can the economy surprise to the upside, and how does an evolving policy backdrop impact the earnings and profitability of companies going forward?”
Shue sees higher interest rates as headwinds for groups like growth and technology. But higher rates are also a major reason why she lists financials — particularly regional banks — as her favorite value trade for the second quarter.
“[They’re] more tied to higher interest rates and a steepening yield curve,” Shue noted.
In addition to stocks, she’s also overweight to high yield municipal bonds and commodities based on the notion that inflation will pick up over the next 12 months.
“We definitely think that we are at the cusp of an inflection point in the economic growth trajectory,” Shue said.
Read More: Good time to trim tech positions as Q2 begins: Wilmington Trust