Source: Barron's
Author: Ro R Lamonica
At a time when tension in the Middle East is once again escalating, investors concerned about the conflict between Iran and Israel should prepare for increased market volatility in the future, but some analysts believe this is not a reason to sell stocks now.
For investors willing to take risks, a further decline in the stock market may bring investment opportunities, especially in certain sectors.
$S&P 500 Index (.SPX.US)$It has been falling for three consecutive trading days. By the close of trading on Tuesday (April 16), the index had fallen close to 4% in April. April so far$Nasdaq Composite Index (.IXIC.US)$It fell by about 3%,$Dow Jones Industrial Average (.DJI.US)$It's down about 5%. Meanwhile, the main indicators that measure the volatility of the S&P 500 index have risen over the past week.
The recent sell-off in the stock market is partly due to concerns raised by the geopolitical situation, but there are many other factors that make investors uneasy: higher-than-expected inflation data, rising long-term bond yields, and some of the problems in the US economy that J.P. Morgan CEO Jamie Dimon (Jamie Dimon) talked about last week.
All of this suggests that the stock market is likely to continue on a bumpy path for the foreseeable future.
Chris Senyek (Chris Senyek), chief investment strategist at Wolfe Research, wrote in a report released on Monday: “We think volatility may increase, and the stock market may face some short-term downward pressure. The rapidly rising geopolitical risk is one of the most worrying issues.”
However, Sayek believes that the stock market will not decline for a long time. This is good news. In fact, some analysts and fund managers believe that some sectors still have compelling reasons to rise.
Sayek said, “Although the possibility of an unexpected rise in the stock market is less than what we have seen recently, we believe that the first quarter earnings report and performance guidance will support a further rise in the stock market, especially if the financial reports and performance guidelines of the stocks most affected by artificial intelligence trading exceed expectations again.”
Sayek advised investors to buy semiconductor stocks. Earlier this year, Wolfe Research's chip industry analysts raised$Analog Devices (ADI.US)$,$NXP Semiconductors (NXPI.US)$und$Microchip Technology (MCHP.US)$ The reason for the stock rating is that the profits of these companies have rebounded.
Other analysts predict that demand for artificial intelligence is expected to remain strong no matter how the situation in the Middle East develops or where inflation takes next.
Emily Bowersock Hill (Emily Bowersock Hill), CEO and founding partner of Bowersock Capital Partners, which manages nearly $1 billion in assets, told “Barron's”$Corning (GLW.US)$,$Honeywell (HON.US)$und$Rockwell Automation (ROK.US)$They are all “beneficiaries of increased demand for artificial intelligence, but so far they have not received widespread attention from the market.”
All three stocks have lagged behind the S&P 500 in gains this year and the past 12 months.
Given the likely fluctuation in oil prices, energy stocks may also present opportunities. Currently, the price of crude oil is hovering around 85 US dollars per barrel, and has risen by nearly 20% since this year. Sayek believes investors should pay attention to energy services stocks. Wolfe Research petroleum industry analysts are right$Halliburton (HAL.US)$,$Phillips 66 (PSX.US)$ with$Marathon Oil (MRO.US)$The ratings are all “outperforming the market”, which is equivalent to “buying.”
Irene Tunkel (Irene Tunkel), chief US stock strategist at BCA Research, also believes that petroleum stocks are now very attractive, mainly because if investors worry about disruptions in the Middle East oil supply, crude oil prices may rise further.
“Energy is a very good hedging tool for inflation and geopolitics, and the main reason the market is concerned about this conflict is because of oil prices,” Tukel told Barron's.
Tucker also pointed out that if the turbulence worsens, because$Boeing (BA.US)$Defense stocks that have fallen into trouble and are losing, as well as cybersecurity stocks, may benefit.
Although market volatility has increased recently, current market volatility is still relatively low by historical standards. The VIX Panic Index is still below 20. The 52-week high of the index is around 35. Furthermore, the VIX Panic Index soared above 85 at the beginning of the COVID-19 outbreak four years ago.
The VIX Panic Index has increased, but it is still below the 52-week high of around 35
JJ Kinahan (JJ Kinahan), CEO of IG North America, an online trading company that owns the retail brokerage firm TastyTrade, said, “There is no time for panic yet, but the rise in the VIX Panic Index is a 'warning' because the interest rate situation is still unclear.”
However, Kinahan still hopes that the stock market will perform relatively well for the rest of this week and next week. More companies will announce financial reports at that time. Kinahan said that in view of recent fluctuations, if the stock market enters a period of consolidation, “it will be viewed as a victory.”
Of course, there are also investors who believe that now is not the time to be a hero and take huge risks, and that a solid portfolio made up of blue-chip stocks should maintain good performance, even when unsettling news appears around the world.
Joe Salmond (Joe Salmond), portfolio manager at Thornburg Investment Management, wrote in a report: “Geopolitics has moved from a brewing concern to a major risk for investors and businesses.” As a result, investors now have more reasons to ensure that their investments are diversified.
Salmond wrote, “Few people want to put all their eggs in the same basket, which is especially unwise when the basket is falling apart, and when more things could go wrong — as we now think — diversified investments are more important than ever.”
Editor/jayden