The markets are officially in correction territory, but one strategist sees a buying opportunity, particularly with two stocks.
The S&P 500 (^GSPC) is down 9% in 2016 and 13% off from the all-time highs it made last May. However, Kate Warne, principal and investment strategist at Edward Jones, sees this year’s selloff in stocks as an emotional overreaction.
“We have seen some disappointing indicators, especially in manufacturing, but certainly the consumer continues to spend,” she said. “That accounts for about two-thirds of economic growth. In addition, companies continue to report higher profits. The growth is not quite what we'd like it to be, but we think those fundamentals are what will drive stock prices over time.”
Warne sees lower oil (CLH16.NYM) prices as benefiting the consumer. It has been the substantial drop in crude – trading at roughly half of where it was just nine months ago – that has helped to bring down the overall markets as energy stocks suffer. But she expects stocks to eventually benefit as well.
“Consumers are benefiting both at the pump, which is really visible, as well as from lower energy prices on home heating and things like that,” she said. “Corporate earnings will also benefit because most companies use energy as an input. So I think what's lying behind the scenes is something that really hasn't been as well-recognized as it will be as we see that earnings growth in the future.”
Consumer staples like Pepsi are considered defensive plays in tough markets, although the snacks company is trading flat from where it was 12 months ago.
“It's something that you can buy today and feel relatively comfortable,” Warne said. “It will be able to continue to grow even with the volatility and with the slow growth environment we're seeing around the world.”
Warne expects Visa will stand out among financials, which are having a rough go of it this year. The ETF tracking the sector (trading under the symbol XLF) is down 15% year-to-date as the market anticipates the Fed will hold off on any additional rate hikes. Higher interest rates are thought to benefit financial institutions because they allow them to charge more for their money.
“Visa certainly benefits from the fact that more people are spending using credit cards versus cash or checks,” she said. “Overall, certainly within financials, Visa's less affected by some of the things that everyone's worrying about but really benefits from a very long-term growth outlook.”
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