The U.S. stock market is trying to rebound after a few sessions of losses, which included Monday’s big collapse that resulted in the Dow and the S&P 500 wiping out their entire 2018 gains.
While the stock market collapse may be unnerving, many analysts and economists see a buying opportunity created by the recent sell-off. Commenting last Friday, following the markets’ collapse, Scott Wren from Wells Fargo’s Investment Institute told FOX Business: “Investors should look at pullbacks as an opportunity to put sidelined funds to work.”
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Meanwhile, Credit Suisse analysts were equally positive about the opportunity created by the sell-off, stating in a research note, “History shows that investing following spikes in volatility tends to lead to above average returns for the S&P 500 and Russell 2000 in subsequent months.” According to the bank’s analysis, for the S&P 500, when the VIX has spiked above 25, in the subsequent three months it has rose 6.9%.
But buying the dip requires discretion.
“We continue to recommend that investors overweight the industrials, consumer discretionary and financial sectors,” Wren said. “We are also overweight the more defensive health care sector. We recommend that investors boost their exposure to these sectors on pullbacks if they are not currently overweight in their equity allocations.”
Goldman Sachs analysts see the stock market correction as technical and positioning-driven rather than fundamentally based. In a research note, the bank added that it believes the fundamental drivers of the equity market remain intact, and the big investment bank maintained its forecast for 8% upside for the S&P 500 this year.
Following the sell-off, they are recommending investors focus on cyclicals, corporations with low labor cost stocks and those with strong balance sheets.
Mary Ryan, a senior equity options strategist at E*TRADE, told FOX Business that the sell-off has created a few opportunities for investors on the sidelines, noting that markets have retreated back to November levels. She added that the pick-up in volatility has created opportunities for short-term speculative traders. However, when asked if she expects markets to return to the upside, she said, “We are going to have to see what happens.”