The S&P 500 dropped just over 1% on Wednesday, led lower by a sell-off in tech and cryptocurrencies. The Dow and Nasdaq dropped as well, shedding 1.3% and 0.8%, respectively.
All three major indexes have traded lower in recent weeks after higher-than-expected April inflation figures triggered concerns about rising prices and borrowing costs, as well as a Fed that might act sooner rather than later to end easing policies.
And one expert says the pain should continue.
“It’s going to be a strange, kind of, grinding summer… where it’s going to be counterintuitive,” said Canaccord Genuity chief market strategist Tony Dwyer. “The [economic] numbers are going to be great. The inflation numbers are going to go up. But you could actually see a little bit of profit-taking in some of those cyclical areas.”
“What we’ve been looking at is the extreme overbought condition on an intermediate term basis. It’s still overbought,” Dwyer said, adding that stocks could drop another 10%.
But Crossmark Global Investments’ Victoria Fernandez says that there’s one canary-in-the-coal-mine that isn’t flashing warning signs.
“People are always looking for that signal to tell them what is coming next and the bond market is really that place,” Fernandez, the firm’s chief market strategist, said. “We’re just not seeing a lot of movement which tells us that even over the last 10 days when we have had [Treasury Secretary] Janet Yellen come out and talk about higher rates, when we had a labor market report that wasn’t up to expectation, inflation that was over expectation and all the volatility in the equity market, the fixed-income market spreads have really been contained.”
“That’s saying the credit market is not concerned right now,” Fernandez added. “We’re sitting in a pretty good spot with a higher VIX [and] a steady bond market. That’s usually positive news for equity markets going forward.”
Instead, Fernandez says the recent market weakness is a good opportunity to buy “wish list” stocks, including four prominent names.
“We like the 5G space, we like data infrastructure, we like names that are related to internet businesses. So, for us, it would be something like a Nvidia (NASDAQ: NVDA), an Adobe (NASDAQ: ADBE),” Fernandez said, adding that her firm was also “looking at Mastercard (NYSE: MA) and Visa (NYSE: V).”