18th-century British nobleman and member of the Rothschild banking family, Baron Rothschild, famously said to buy “when there’s blood in the streets.” With coronavirus fears inducing a wave of panic selling, BNY Mellon’s chief strategist Alicia Levine offered some tangible tips on how to spot a buying opportunity other than looking for “blood in the streets.”
Even as U.S. President Donald Trump tried to calm the markets via a press conference, investors were greeted with more red in Thursday’s trading session as the Dow Jones Industrial Average fell as much as 700 points. This is all causing investors to stockpile on bonds, but for those who want to buy the dip, how do they know the time is right if the market seems to keep dipping?
“If you think it is essentially a short-term problem, a hit to growth, but then it is over by the summer, then you’re fine going into the market. But if you think it is worse than that, then you have to play that out,” Levine told MarketWatch. “We do think by the summer, this will be a memory and that growth will recover.
As far as what to watch for, a MarketWatch report noted that Levine “is watching out for signs of a dramatic daily drop in China infections, and pickups in usage of coal, electricity and road and rail in that country, alongside property sales. As well, she wants to see signs that the mortality rate is lower, which will mean fewer quarantines and containment shutting down activity.”
Investors can stay on the sidelines and wait for more data to come through in order to “take some risk off the table if you’re sitting on gains.” Levine also advised on not diving too deep into safe-haven assets during this wave of panic stock selling.
The report also stated that “Goldman Sachs strategist David Kostin and his team, who predict the S&P 500 could drop to 2,900 from here if investors start to believe the coronavirus outbreak is spreading, but rebound to 3,400 by year-end. They suggest buying defensive stocks, such as real estate and utilities.”
Some utilities sector-related ETFs to consider include the Utilities Select Sector SPDR (NYSEArca: XLU), Invesco DWA Utilities Momentum Portfolio (NASDAQ: PUI) and Vanguard Utilities ETF (NYSEARCA: VPU). Aside from helping to mute volatility, the utilities sector also provides a steady dividend, providing investors with a bond-like income return.
Furthermore, in a low yield environment where more Fed rate cuts could be on the way, the yields on utilities makes them that much more attractive to income-seeking investors.
For more information on the utilities sector, visit our utilities category