Market Timers, Beware: Now Isn’t the Time to Buy the Dip
Many experts caution that stocks may have further to fall, and investors should be cautious about rushing in to buy beat-up shares of tech companies in...
While the market’s slide might tempt some bargain hunters, now’s not the time to buy the dip, some experts caution.
In recent days, the stock market has approached its lows of mid-June. Stocks fell sharply last Friday as investors digested Federal Reserve Chairman Jerome Powell’s speech at Jackson Hole, where he reiterated the central bank’s commitment to raising rates to contain inflation even if that meant inflicting “some pain” on families and businesses, and the market’s losses have extended into this week.
Some investors might see these price declines as an opportunity to scoop up highflying stocks whose prices have fallen. In particular, they might be eyeing tech stocks, which outperformed during the long bull market and also got a boost off the June lows.
Yet, there are some problems with this strategy, Dan Suzuki, deputy CIO at Richard Bernstein Advisors in New York, wrote in a recent research note: First of all, this bear market may have a ways to go, and there’s no advantage to rushing in to “be there for the bottom.” What’s more, bear markets always signal a change in market leadership. In other words, yesterday’s winners will not be tomorrow’s winners, so investors shouldn’t be looking for deals in the rearview mirror.
Take tech, for example. High-growth tech stocks are particularly vulnerable to rising interest rates. Just because a stock is a good deal relative to its past price doesn’t mean it’s cheap based on its future earnings potential, said Michael Landsberg, chief investment officer of Landsberg Bennett Private Wealth Management in Punta Gorda, Fla. Nvidia, the semiconductor company, is an example of a stock that’s taken a beating that might look like a good buy on the surface, Landsberg said, when in fact it faces some headwinds.
Defensive sectors such as healthcare, utilities, and consumer staples are currently more attractive than tech and consumer discretionary stocks, Landsberg said. Those who are overweight in tech stocks can take this opportunity to dial back their allocation, he noted.
Investors who want to make tactical allocations right now should prioritize quality, said Quincy Krosby, chief global strategist at LPL Financial, in Charlottesville, Va. That means focusing on companies with a strong cash flow and also a solid record of paying dividends.
Broadly diversified investors should continue to dollar-cost-average into the market through their 401(k) or 529 college savings plan, Landsberg said. That’s not buying the dip, he noted, that’s just buying the broad market when it’s on sale. “When you’re buying everything, you want to buy when there’s uncertainty,” he said.
Write to Elizabeth O’Brien at elizabeth.obrien@barrons.com