Stocks fell again Wednesday on new concerns over Greece, marking the sixth straight day of losses for the Dow Jones Industrial Average. But instead of a taking a cautious tone, some financial advisers are urging clients to use this latest dip to snap up shares — at a discount.
The Dow fell 97 points Wednesday, paring back some of its earlier losses after European officials agreed to release €4.2 billion ($5.5 billion) in bailout funds to Greece, while holding back €1 billion that will be paid by June, according to a report in The Wall Street Journal. The heightened anxiety comes as investors have been bailing from the market for safe-haven investments like Treasury bonds for months. According to the Investment Company Institute, investors yanked money out of stock funds 10 out of the past 11 months (the one exception was February).
Some investing pros, however, say these investors are going the wrong way, and that the recent stock slide offers a buying opportunity. Wells Fargo Advisers, for example, is recommending that clients buy more stocks from select sectors like consumer discretionary and materials that should do well if the economy picks up. Independent advisers are getting in on the action, too. “We’re actually buying in our clients’ accounts,” says Mark Wilson, vice president of the Tarbox Group, a wealth management firm in Newport Beach, Calif. “The folks that have cash, we’re putting that to work right now.”
Critics of the strategy point out that investors have plenty to fear, including concerns that the election of a pro-stimulus president in France could leave Germany, the strongest economy in Europe, without support for its austerity and cost cutting approach, says John Lonski, chief economist for Moody’s Analytics. “The market is confused,” says Lonski. “What direction is Europe going to head in?”
And May is typically known as a month when investors ditch their stocks, as the next six-month period is typically the weakest of the year. The S&P 500 has returned an average 1.2% over that time period each year going back to 1945, the poorest for all rolling six month stretches, according to S&P Capital IQ. Since 1950, the market’s strongest months have been December, April, November and March.
The current crop of stock-buyers, however, says history doesn’t always repeat itself. Sometimes, they point out, the market surges over the summer, as it did in 2009, 2003, and 1997, according to S&P Capital IQ. Investors who sell now could miss out on a potential rebound later this year, says Scott Wren, senior equity strategist for Wells Fargo Advisors: “These seasonal trends aren’t written in stone.”
Experts also point out that the U.S. economy is on better footing than it was a year ago. A continuation of modest economic growth could help the market, says Wren, who is buying consumer discretionary stocks from retail companies and restaurants that should benefit from an increase in consumer spending. The Federal Reserve is likely to keep rates low, which should in turn keep borrowing costs down for companies that are seeing positive earnings growth. And the recent drop is making stocks more attractively priced, says Wren.
Wilson is using the recent dip to buy large-cap U.S. stocks and emerging-market equities. He is cutting back on small-cap stocks, which he says have gotten expensive after their run up over the last three years. Despite the recent market volatility, slow, but steady, growth in the U.S. should support market performance at home and abroad, he says.