With U.S. stocks and bonds having one of their worst years in decades, investors may be wondering where they can hide out.
In the latest installment of our series “What to do in a bear market,” Yahoo Finance asked the experts where they’re included to put money amid volatile times.
Where can investors hide in the event of another downturn as the Fed continues to tighten?
Bear markets are painful, but they eventually pass, says Sylvia Jablonski CIO of Defiance ETFs.
Jablonski advises defensive sectors like healthcare, consumer staples and utilities — with stocks that pay dividends which help boost returns when equity prices are falling. She is also focused on high-quality companies.
“During uncertain markets like the one we are experiencing, I’m focused on old tech. I’d like to buy Apple (AAPL), Amazon (AMZN), Microsoft (MSFT), Google (GOOGL, GOOG), for example, who are cash cows, have strong cashflow dynamics, 30% or so margins in some cases, pricing power, and are part of the secular tech growth trend,” she said.
“I would stay away from new tech like some of the pure growth types of trades that do not stand up in terms of balance sheet, and will be hurt by higher rates,” Jablonski said, citing examples such as Peloton (PTON), Roku (ROKU), Zoom (ZM).
Some strategists are keeping cash on the sidelines, and leaning into commodities.
“Our single largest active overweight call remains to be in cash and commodities. We just think it’s a hedge against anything bad happening,“ says chief investment strategist Gaurav Mallik of State Street Global Advisors.
He also highlights incremental exposure to European assets relative to the US. “In Europe’s case, financial conditions are extremely tight. Which means there could be some positive surprise from the ECB [European Central Bank],” he said.
“The earnings have been very strong in Europe. In fact sales growth has been better than the US in Q2,” added Mallik.
"Dividend stocks have been the best oasis since the market peaked on November 19th [2021]," said Louis Navellier, chief investment officer of asset manager Navellier & Associates.
"Domestic stocks have a natural advantage over multi-international stocks that are being hurt by a strong U.S. dollar," he added, citing names like Alliance Resource Partners (ARLP), Coterra Energy (CTRA), Devon Energy (DVN) & Hess Midstream (HESM).
Is it advisable to short stocks at this point?
"No, you could get buried in a short squeeze if you short at this time," said Navellier. "I think the stock market could explode to the upside when the Fed raises key interest rates on September 21st, since that could be the last rate hike."
Should investors be buying the dip?
"There is no rush to jump into the market, but as evidenced by July, rebounds sneak up on us and they tend to be quick and powerful. The current market and the next couple of months will present a lot of opportunities on downturns to scoop up quality companies for future returns," said Jablonski.
"This market doesn’t feel great to enter, but in hindsight it will have been another great opportunity to buy stocks, post covid before we pick up another multi year rally when we get past fed tightening and slower macro growth," she added.
Mike Wilson, equity strategist at Morgan Stanley told Yahoo Finance last month a move back towards the June lows in the S&P 500 (^GSPC), or even lower, is possible as the earnings picture deteriorates.
“We do think those June lows will be taken out at the index level," Wilson said. "But at the stock level there’s probably many stocks that have already bottomed at that June low and that’s the name of the game — we're trying to pick the right spots to be."
“What I would suggest to the listeners, is that you wait for this retest sometime in the fall, as the numbers come down and as we go through the old lows, towards 3,500 maybe [on the S&P 500]," he said. "That’s where you begin to start accumulating. Because that next low, will be the more sustainable one, that we think could lead to truly the next bull market which could be as early as next year."
On Friday, stocks ended the day lower following the latest jobs report. Every sector of the S&P 500 closed with weekly losses. Tech, materials and real estate stocks lost the most.
Year-to-date, Energy stocks are the clear out performers, followed by Utilities. The rest of the 11 sectors in the S&P 500 remain in the red.
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