The latest downturn in the market has left investors feeling uneasy. Yet, leading strategists believe there are still prospects available.
The $VIX reduced 41% from its peak (65.73) to its close (38.57) yesterday, marking the highest percentage decline ever recorded.
— Charlie Bilello (@charliebilello) August 7, 2024
David Kostin, Chief US Equity Strategist at Goldman Sachs, points out that the S&P 500 typically experiences a strong recovery following drops of 5%.
% Below 52-Week High (10 Largest US Firms)…
Berkshire Hathaway $BRKB: -6%
Meta $META: -9%
Apple $AAPL: -13%
Microsoft $MSFT: -15%
Google $GOOGL: -17%
Eli Lilly $LLY: -18%
Amazon $AMZN: -20%
Broadcom $AVGO: -22%
Nvidia $NVDA: -26%
Tesla $TSLA: -28%— Charlie Bilello (@charliebilello) August 6, 2024
Since 1980, the index has demonstrated an approximated 80% likelihood of gains over the next three months following a significant drop. Keith Lerner, Chief Investment Officer at Truist, highlights that the S&P 500 generally experiences a 14% peak-to-trough decline each year. Notably, the index has bounced back from its yearly lows in 33 of the past 40 years.
Where should investors direct their gaze? Goldman Sachs and Truist recommend focusing on defensive stocks within the communication services sector. These stocks are typically characterized by stable earnings and strong technical performance.
Goldman’s prime book data indicates that Hedge Funds capitalized on the dip in US tech stocks. Witnessed the largest single-day purchase of stocks in 5 months.
— Holger Zschaepitz (@Schuldensuehner) August 6, 2024
Kostin at Goldman Sachs further endorses investing in consumer staples. These sectors tend to thrive when economic growth starts to wane, potentially leading the Federal Reserve to lower interest rates.
No significant deviations from “business as usual” for the largest equity market: S&P 500 is down -8.5% from its peak on July 16; historically, drawdowns at this level are quite standard, with a median intra-year maximum drawdown of 10% since 1985
@SPDJIndices— Liz Ann Sonders (@LizAnnSonders) August 6, 2024
Potential in Defensive Stocks
Lerner from Truist identifies utilities as attractive investments. They hold strong valuations even after a considerable rise in July.
Mike Wilson of Morgan Stanley recommends a focus on defensive stocks and large-cap companies, which tend to perform better in turbulent economic climates. Contrary to common belief, Wilson suggests that defensive sectors and large-cap stocks generally display relative strength.
This is attributable to their resilience against economic fluctuations and their ability to set prices. UBS Global Wealth Management is turning its attention to high-quality growth stocks, particularly within the artificial intelligence field. Solita Marcelli, Chief Investment Officer at UBS GWM, sees the recent price corrections in AI stocks as a significant opportunity.
Investors can now acquire prominent players in the semiconductor, software, and internet sectors at more favorable valuations. Despite the recent market volatility unsettling some, historical patterns indicate a promising direction. Defensive stocks, consistent sectors, and high-quality growth stocks stand out as recommended investments.
As always, it’s essential for investors to conduct thorough research and evaluate their risk tolerance before proceeding.
