While the market slippage may tempt some bargain hunters, now is not the time to buy the dip, some experts warn.
In recent days, the stock market has approached its lows in mid-June. Stocks fell sharply last Friday as investors digested Federal Reserve Chair Jerome Powell’s Jackson Hole speech, as he reiterated the central bank’s commitment to raise interest rates to contain inflation even if it meant inflicting “some pain” on families and businesses, and market losses extended into this week. .
Some investors may see these price drops as an opportunity to snap up high-rise stocks that have fallen in price. In particular, they may look to technology stocks, which outperformed during the long bull market and also got a boost from their June lows.
However, there are some problems with this strategy, Dan Suzuki, vice president of information at Richard Bernstein Advisors in New York, wrote in a recent research note: First of all, this bear market may have ways to go, and there’s no advantage to rushing in. Be there for the bottom.” Moreover, bear markets always indicate a change in market leadership. In other words, yesterday’s winners won’t be tomorrow’s winners, so investors shouldn’t be looking for deals in the rearview mirror.
Take technology, for example. High-growth technology stocks are particularly vulnerable to rising interest rates. Just because a stock is a good deal compared to its past price doesn’t mean it’s cheap based on its potential future earnings, said Michael Landsberg, chief investment officer at Landsberg Bennett Private Wealth Management in Punta Gorda, Florida.
The semiconductor company, Landsberg said, is an example of a battered stock that might look like a good buy on the surface, when in fact it’s facing some headwinds.
Currently, defensive sectors such as healthcare, utilities and consumer goods are more attractive than technology stocks and consumer appreciation, Landsberg said. He noted that those who are overweight in technology stocks can seize the opportunity to reclaim their allocations.
Investors who want to make tactical allocations right now should prioritize quality, and that means focusing on companies that have strong cash flow but also a solid track record of paying dividends, said Quincy Crosby, chief global strategist at LPL Financial, in Charlottesville, Virginia.
Landsberg said broadly diversified investors should continue to average the dollar cost of the market through a 401(k) or 529 total savings plan. He pointed out that this does not mean buying the dip, this is just buying the broad market when it is offered for sale. “When you buy everything,” he said, “you want to buy when there is uncertainty.”
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