Market Volatility: Expert Says "Buy the Dip," But Be Selective
As the stock market grapples with continued volatility, investors are seeking guidance on navigating the choppy waters. The recent selloff, fueled by concerns about economic growth and inflation, has left many wondering if the downturn signals a deeper correction or simply a temporary dip.
Rich Sapin, a top-ranked financial advisor and CEO of Treasury Partners, joined us today on Post 9 to offer his insights. Sapin, who has weathered numerous market storms throughout his career, sees this recent decline as a buying opportunity, but with a caveat. "We still fully invested," he said, "but I’d like to see things settle out before we start committing more capital."
Sapin pointed to the disproportionate decline in the market compared to tepid economic data as a key reason for cautious optimism. He believes the market’s current valuation, at 22-23 times earnings, is a contributing factor to the volatility.
While Sapin acknowledges the potential for further pullbacks, he remains bullish on large-cap tech stocks, a sector he believes is currently undervalued by many investors. "Where do you find a $1 billion business growing 30% a year?" Sapin asked, referring to the growth of companies like Microsoft and Amazon’s cloud business. "Many investors are underweight large-cap tech, and that’s where the opportunity is."
However, he cautions against assuming everyone owns these tech giants. “There are a lot of investors who are underweight large-cap tech," Sapin explained. "They might have biotech or other exposures, small cap, midcap, international.”
Sapin also highlighted the importance of diversification, suggesting investors consider adding to sectors like utilities, which he sees as a long-term growth play. "We’ve been adding to utilities," Sapin revealed, citing companies like Nextera and Vistra, which he sees as benefiting from the secular increase in power demand and population growth in key states like Florida and Texas.
While Sapin remains optimistic about the long-term outlook for the market, he acknowledges the current challenges. He believes valuations remain stretched, despite the recent pullback, and that volatility is likely to persist. As for bonds, Sapin believes the current environment offers attractive opportunities in tax-free housing bonds and shorter-term, taxable treasury paper.
Despite the market’s ups and downs, Sapin’s message remains clear: “Buy the dip,” but proceed with caution and focus on value and long-term growth. By carefully considering asset allocation and sector diversification, investors can navigate the current market volatility and position themselves for future success.
Market Volatility Continues: Is It Time to Buy the Dip?
The stock market continued its turbulent ride on Tuesday, with all three major indices struggling to recover losses from Monday’s selloff. While tech giants like Apple, Amazon, and Alphabet are showing some green, many investors are wondering if this is the time to buy the dip or hold off. Rich Sapin, a top-ranked financial advisor and the CEO of Treasury Partners, joined us on Post 9 to discuss his market outlook and the best strategies for navigating the choppy waters.
Key Takeaways
- The recent market decline was disproportionate to tepid economic data. Sapin believes the market is overvalued, trading at 22-23 times earnings, leading to heightened volatility.
- Investors should be wary of the "two steps in a stumble" effect. The market may still experience some further decline before it stabilizes.
- Sapin remains bullish on large-cap tech. He argues that many investors are underweight in this sector and have the opportunity to capitalize on its growth potential.
- Utilities are a potential safe haven. Sapin cites a need for increased power generation in the United States and recommends Nextera Energy and Vistra Corp as strong picks.
- Valuation remains a concern. While valuations have come down for many tech stocks, Sapin believes they are still stretched and investors should approach them cautiously.
- Bonds offer limited opportunities, but housing bonds are still attractive. Sapin suggests investors consider adding housing bonds, which still offer over 4% tax-free yields.
Navigating the Market Volatility: A Playbook from the Pros
Sapin, who has been through numerous market cycles, emphasizes the importance of having a playbook for dealing with volatility. His approach consists of three key components:
1. Understanding the Catalyst
Sapin believes the recent decline was triggered by a combination of factors, including:
- Overvaluation: The current market trading at high multiples, making it susceptible to corrections.
- Tepid Economic Data: The recent economic data has not supported the high valuations, leading to a disconnect between market expectations and reality.
- Investor Sentiment: Sentiment has shifted from optimism to fear, leading to widespread selling.
Understanding the underlying cause of the decline is crucial for making informed investment decisions.
2. Adjusting Asset Allocation
Sapin recommends being proactive in reassessing asset allocation, particularly in light of the market’s volatile nature. He highlights how his firm, Treasury Partners, positioned their client portfolios last year by incorporating long-term tax-free municipal bonds offering a 4.5% yield. This provided a hedge against market volatility while delivering a steady stream of income.
However, Sapin cautions against jumping back into equities too quickly. He prefers to wait for a period of stabilization before committing additional capital to stocks.
3. Focusing on Value and Growth
Sapin advises investors to carefully analyze potential investment opportunities and focus on companies with strong fundamentals and growth prospects.
Large-Cap Tech: A Potential Opportunity
Sapin remains optimistic about the growth potential of large-cap tech companies. He argues that many investors are underweight in this sector, due to concerns about valuation. However, he sees this as an opportunity for investors who are willing to hold for the long term.
"Where do you find a $1 billion business growing at 30% year over year?," Sapin asks. "That’s what Microsoft, Amazon, and Google are already doing in their cloud businesses."
He believes that investors who are underweight in large-cap tech stocks should consider increasing their exposure to this sector.
Utilities: A Defensive Play
Sapin suggests adding utilities to portfolios as a defensive play. He highlights the growing demand for power generation in the United States and points to the strong fundamentals of Nextera Energy and Vistra Corp.
"Nextera is a great company with a strong track record of growth," Sapin says. "Vistra is another well-run company that has been a long-term holding for Treasury Partners since 2021."
Sapin believes that utilities can provide stability and income during periods of market volatility.
Valuation Matters
While Sapin is bullish on some sectors, he acknowledges that valuation remains a concern. He believes that the market is currently priced for 15% earnings growth year over year, which is unsustainable.
"These stocks are still stretched," he admits.
He encourages investors to focus on companies with strong cash flow and growth prospects, and to be wary of overpriced assets.
Finding Opportunities Amidst the Turbulence
Sapin’s perspective is a reminder that even during periods of market turbulence, there are opportunities for investors who are willing to look beyond the headlines and focus on fundamentals.
He encourages investors to:
- Stay disciplined: Stick to a well-defined investment plan and avoid making rash decisions based on short-term market fluctuations.
- Be patient: Market cycles are inevitable, and it’s important to remember that long-term growth is more important than short-term gains.
- Seek guidance: Consulting with a qualified financial advisor can provide valuable insights and help you navigate the complexities of the market.
By staying informed and following a disciplined approach, investors can increase their chances of success in the long run.
The Bottom Line: Embrace the Volatility
Market volatility is a normal part of the investment landscape. While it can be unsettling, it also presents opportunities for savvy investors. Sapin’s advice is to understand the market’s underlying dynamics, reassess asset allocation, and focus on companies with strong fundamentals and growth potential. Don’t be afraid to embrace volatility and use it to your advantage.
