Top strategists identify opportunities amid sell-off

The recent market sell-off has investors on edge. But top strategists say there are still opportunities to be found.

The $VIX fell 41% from its high (65.73) to its close (38.57) yesterday, the largest % move lower on record. pic.twitter.com/7EpM1aHcq4

— Charlie Bilello (@charliebilello) August 7, 2024

David Kostin, Chief US Equity Strategist at Goldman Sachs, notes that the S&P 500 often rebounds strongly after losses of 5%.

% Below 52-Week High (10 Largest US Companies)…
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 had an approximately 80% success rate of gains in the following three months after such a drop. Keith Lerner, Chief Investment Officer at Truist, also points out that the S&P 500 usually suffers a 14% peak-to-trough decline annually. However, the index has rebounded from its annual lows in 33 of the last 40 years. So where should investors look? Goldman Sachs and Truist are advocating for defensive stocks in the communication services sector. These stocks tend to have steady earnings and robust technical trends.

Goldman’s prime book data suggests that Hedge Funds bought the dip in US tech stocks. Saw largest 1day buying of single stocks in 5 months. pic.twitter.com/faa5Nl1LPK

— Holger Zschaepitz (@Schuldensuehner) August 6, 2024

Kostin from Goldman Sachs also supports investing in consumer staples. These economically agnostic sectors tend to perform well when economic growth slows. This could prompt the Federal Reserve to cut interest rates.

Not yet outside “business as usual” for world’s largest equity market: S&P 500 is -8.5% from its July 16th high; historically, drawdowns of that magnitude are fairly par for course, with median intra-year maximum drawdown of 10% since 1985
⁦@SPDJIndices⁩ pic.twitter.com/tYfqa50OBL

— Liz Ann Sonders (@LizAnnSonders) August 6, 2024

Opportunities in defensive stocks

Lerner of Truist notes utilities as appealing investments. They have strong valuations even after a significant rally in July. Mike Wilson from Morgan Stanley suggests a focus on defensive stocks and large-cap companies. These tend to fare better in unstable economic conditions. Contrary to conventional wisdom, Wilson advises that defensive sectors and large caps typically exhibit relative strength. This is due to their economic resilience and pricing power. UBS Global Wealth Management is looking towards high-quality growth stocks, particularly in the artificial intelligence sector. Solita Marcelli, Chief Investment Officer at UBS GWM, believes the recent correction in AI stock prices provides a valuable opportunity. Investors can now buy key players in the semiconductor, software, and internet spaces at more reasonable valuations. While the recent market turmoil has shaken investors, historical trends suggest a path forward. Defensive stocks, steady sectors, and high-quality growth stocks are among the recommended investments. As always, investors should do their due diligence and consider their risk tolerance before making decisions.