April showers brought May flowers, but this month's market storm may bring investors something even better—a chance to bottom stocks.
Wall Street's recent turmoil has raised concerns about the economic situation and led people to question how long this bull market will last. But savvy investors should filter out this noise, especially after the first-quarter gross domestic product (GDP) growth was lower than expected, and the US stock market declined on Thursday.
“The economy is still strong,” said Tom Hulick (Tom Hulick), CEO of private consulting firm Strategy Asset Manager. He believes that the economic slowdown is not worth being wary of, especially since the job market is still healthy and consumer spending remains at a fairly good level, which is enough to support a steady increase in income.
Inflation remains the biggest concern for the economy and markets. The GDP personal consumption expenditure price index rose 3.4% year on year in the first quarter. According to Hulick, investors are now trying to control the possibility that inflation (such as interest rates) may last longer. He believes that personal consumption spending will fall to an annual growth rate of 3% in the short term, rather than the 2% level desired by the Federal Reserve.
But that doesn't mean investors should just sell stocks. In fact, Hulick believes investors should continue to buy highly valued tech stocks such as the “Big Seven,” despite people's opinions$Meta Platforms (META.US)$Meta shares fell sharply on Thursday due to concerns about the latest earnings report, but some tech stocks, in particular$NVIDIA (NVDA.US)$und $Advanced Micro Devices (AMD.US)$Shares of leading chip companies, as the market expects Meta to increase capital expenditure budgets, which means that semiconductor companies with artificial intelligence businesses will rise as they receive more revenue.
“Mark Zuckerberg (Mark Zuckerberg) created a huge capital expenditure plan for the right reasons; he is a visionary. I really think Meta's spending is a sign of the importance of artificial intelligence,” Hurick said. His company owns shares in Meta, Nvidia, and AMD.
Others also believe that Thursday's sell-off is instead a reason to stick to the current trajectory and not abandon leading technology companies.
Alicia Levine (Alicia Levine), head of investment strategy and equity advisory solutions at BNY Mellon Wealth Management (BNY Mellon Wealth Management) in New York, said at a press conference on Thursday that the strong performance of the technology industry is one reason why the company currently expects an 11% year-on-year increase in earnings this year and 2025.
She said that she is particularly optimistic about companies with strong balance sheets. These companies do not need to raise capital through bond issuance to finance expansion, as is the case with almost all leading technology companies.
“If you don't have to borrow to achieve growth, then high interest rates won't have that much of an impact,” Levine said.
However, she also pointed out that the recent expansion in market breadth (the scope of the rebound extended to industries other than finance, healthcare, industry, and technology) is also encouraging and will continue.
Hulick said he wanted to find companies with pricing capabilities and high profit margins. He uses insurance brokerage owned by his company$Arthur J. Gallagher (AJG.US)$,$Merck & Co (MRK.US)$,$Intuitive Surgical (ISRG.US)$und$Honeywell (HON.US)$Take for example.
Nonetheless, Thursday's GDP report sounded a wake-up call. The possibility of a recession this year still seems far away, and many fund managers and economists continue to brag about the possibility of a soft (or no) landing in the economy.
But investors should not completely ignore these warning signs.
“The risk of a recession is still higher than normal given the tight monetary policy stance,” said Mike Reynolds (Mike Reynolds), vice president of investment strategy at Glenmede, in a research report entitled “Goldilocks Trips & Scraps Her Knee” (Goldilocks Trips & Scraps Her Knee).
A bond strategist told Barron's that investors need to accept safer assets after the GDP data is released.
“I don't think you can say with 100% certainty that the possibility of a recession is zero. Jennifer Karpinski (Jennifer Karpinski), managing director of Jennison Associates and senior product expert, said: “The longer high interest rates continue, the more you will begin to see cracks in the economy.”
However, Kaspinski said that this increases the possibility of interest rate cuts later this year and may increase investors' interest in high-quality bonds (that is, US Treasury bonds and AAA-rated corporate bonds, especially financial bonds).
“Issuers who are more defensive and have higher ratings are better able to withstand the economic downturn,” she said.
Stocks and bonds also seem to be in a similar situation, so now is the time to embrace stability.
Editor/Jeffrey