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Mehvish Ayub, senior investment strategist at State Street Global Advisors, said a correction in many stock markets is overdue, but strong fundamentals and corporate earnings make the current fluctuation a buying opportunity.
Wall Street made up for its losses on Tuesday after Jerome Powell, chairman of the US Federal Reserve, said inflation was still “soft” and committed to the Fed’s current accommodative policy.
Powell’s comments seemed to allay some of the concerns about imminent inflation that has caused a sharp rise in U.S. 10-year Treasury yields as a benchmark, and which have pushed stock markets down from near-record highs in the past week. achieved.
Investors were concerned that a price hike due to an imminent federal stimulus package, the revival of the economy and pent-up consumer demand could force the central bank to increase borrowing costs in the short term.
Speaking to CNBC’s Capital Connection on Wednesday, Ayub noted that the shift in financial conditions and the improvement in growth and inflation expectations had meant that the U.S. 10-year yield was simply part of the sharp drop it saw between December. 2019 and June 2020, got back. when the Covid-19 crisis hit.
“I think the important thing to note is that nowhere in its policy has the Fed suggested that it will suppress all financial conditions. It has a target for price stability and for employment,” Ayub said.
She noted that core inflation – excluding food and energy prices – is still slightly lower, indicating that the current rise in near-term inflation expectations is “likely to be transient”.
“We were ripe for a correction in some cases, considering the speed and magnitude of the movements we’ve seen in global stock markets,” said Ayub. A correction is generally referred to as a 10% decline in an asset or market from its most recent high.
Many of the tech megastocks that saw stratospheric stock prices rise, driving the stock market’s recovery after the March 2020 downturn, have fallen victim to the recent shift, with investors looking for more cyclical stocks that tend to adapt to economic conditions.
Mikhail Zverev, chief of global equities at Aviva Investors, told CNBC on Wednesday that many of these growth stocks – those of companies with significant and sustained positive cash flow, with higher future earnings and faster growing earnings than peers – had benefited from the low interest environment.
“There are some fast-growing names with a spectacular 2020, and some of that was certainly fundamental, but a lot of that was lower-based positioning for longer interest rates, and some relaxed, I think, should have waited a long time.”
Tesla was one such example: it dropped 8.55% on Monday for its worst day since September 2020, and slightly left stock since the turn of the year. However, Tesla shares are still up 162.5% from their March 2020 low.
“We’ve actually had really good foundations in recent weeks,” Ayub noted. “We’ve had really good earnings, especially when we look at the S&P 500.”
With about 80% of companies on Wall Street’s flagship blue chip index reporting profits at this stage, the vast majority have met or exceeded earnings expectations.
“The fundamentals there remain good, and if anything I think this is an opportunity to buy on the dip,” Ayub concluded.