What Wall Street Strategists Recommend Doing In This Bear Market
It’s been a grueling year for those who own almost every type of stock. The S&P 500 (^GSPC) is down 16% year-to-date. The Nasdaq (^IXIC) is down 24% over the same period. Even the energy sector (XLE) – the only positive so far this year – has seen some of its gains evaporate recently.
In a new Yahoo Finance series, we look at some of the strategies recommended by experts for how to navigate a bear market. To begin, we asked them what they think investors should do in an environment of tighter monetary policy and the threat of a recession.
We have seen a few rally days over the past two weeks. Have the markets bottomed out? What should investors do now?
“The names that have really benefited since mid-June and the last Federal Reserve meeting have been the highest beta areas in the market. Some of the names that are kind of unprofitable tech would be one way to sum it up said Chris Pollard, managing director of Cowen and head of market strategy at Yahoo Finance Live.
“These are the names that have had very pronounced movements and it’s a way of looking back on these exposures,” added P. “I think using this time, this countertrend movement, to lift funds and giving you an option for what should be a push to new lows is what we would advise here.”
“The movement we’ve seen over the past two weeks is unlikely to be sustainable on the upside,” he noted.
When will the capitulation take place?
“It’s another way of saying, ‘When do I come in and buy.’ head of Interactive Brokers, at Yahoo Finance Live. .
“We are still in a bear market and we still see the Fed as a headwind,” he said.
The Federal Reserve is expected to raise rates at its next meeting next week. Tighter monetary policy has been a headwind for equities as liquidity dries up.
“Don’t be seduced” by “short, sharp and fierce bearish rallies,” he advised.
“You really don’t get a dip unless you see a change in fiscal or monetary policy. I don’t see that at the moment,” he added.
Should investors keep stocks that have lost money?
Some experts say it depends on the company in question and the time horizon of the investor.
“The average bear market for the entire S&P 500 took about a year to bottom out, but it could be much longer for individual stocks (if they rally at all),” Ross Mayfield said. , investment strategy analyst at Baird at Yahoo Finance.
“Investors should consider whether the investment case for owning the stock has fundamentally changed and what the timeline really is for the money invested,” he added.
He also noted: “Market volatility and sell-offs are simply part of the long-term investor’s experience – they happen with regularity but always eventually end with the market reaching new highs. In addition, Holding cash in an effort to perfectly time the market down is a very risky proposition that can cause someone to miss the rally that starts the new bull market.”
How do investors prepare their portfolio for an economic downturn or recession?
“When we look at the percentage probabilities of whether we’re going to tip into a recession or whether we’re just going to see slower growth. We give a slight edge to slower growth, just because of the strength of the consumer coming in in this situation,” Kristen Bitterly, head of North American investments at CIti Global Wealth, told Yahoo Finance.
She recommends “creating a strong diversification within the portfolio between fixed income and equities. And really looking at quality and being relatively conservative when it comes to stretching yield, or expand in credit,” she added.
“I think there’s a portfolio solution here as an investor, to stay fully invested, but making sure you’ve gotten better quality in equities and fixed income,” Bitterly said.
Are some stocks simply oversold?
Valuations have fallen significantly.
Brian Jacobsen, senior investment strategist at Allspring Global Investments, told Yahoo Finance that one area he likes is consumer staples and technology.
“It’s almost like a barbell approach here where there are a number of names that seem like they’ve probably been thrown under the bus so to speak as people have become a bit more pessimistic thinking the Fed might induce a recession as they try to get inflation under control,” he added.
Ines is an equity market reporter. Follow her on Twitter at @ines_ferre
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