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Dip Buyers Exist Even on a Day When Panic Is Gripping Markets

Dip Buyers Exist Even on a Day When Panic Is Gripping Markets

(Bloomberg) -- Wall Street dip-buyers have a message for the doomsayers: It will get better.

With U.S. stocks plunging as much as 7% after triggering a trading halt, a clutch of investors and strategists are putting their necks out as the spreading virus and the oil-price collapse spur a frenzy of selling.

Their mantra is: risk assets look cheaper, the virus shock transitory and the policy response imminent.

Edward Perkin, chief equity investment officer at Eaton Vance, says it’s time to gradually lean in rather than de-risk. Barclays’ wealth-management unit is looking to deploy more cash, after lifting its stock weighting last week.

Peter Tchir, head of macro strategy at Academy Securities, has just morphed from bear to something of a bull on the view that market fears look overdone. Morgan Stanley sees a V-shaped economic recovery ahead.

Dip Buyers Exist Even on a Day When Panic Is Gripping Markets

“We moved back to neutral developed equities from underweight last week and we are watching our sentiment indicators carefully for a signal of when to deploy more of the cash,” said William Hobbs, chief investment officer at the wealth management arm of Barclays. “Our best guess remains that this is a transitory hit to economic activity, with a likely sharp recovery arriving in the second half of the year.”

Hobbs points to the example of China, where large-caps are up 8% from their February trough as the coronavirus outbreak shows signs of slowing and economic activity gradually recovers.

His confidence contrasts with predictions of a recession and calls for crisis-era stimulus heard across Wall Street on Monday as the S&P 500 lost as much as 7.4%, triggering a market-wide trading halt.

Entry Points

To be clear, even Hobbs isn’t certain market volatility will calm down just yet. But with a multi-month time horizon, these are attractive entry points.

The S&P 500 is now 17% cheaper compared with its peak, while the dividend yield is at a record compared with bonds. How you appraise the market depends on how dire you see the coronavirus shock on earnings.

U.S. stocks are now trading around 16 times the next year’s profits, much cheaper than their peak but still around their 10-year average and far higher than previous recessions.

Holed up at home in Milan, Angelo Meda, head of equities at Banor SIM SpA, says defensive and technology equities less directly affected by the virus look appealing, even if he doesn’t see a bottom for equities just yet. He started to snatch up some consumer-staples names on Monday.

Dip Buyers Exist Even on a Day When Panic Is Gripping Markets

“It’s time to buy something, especially in the defensive sectors,” he said. “If you can buy some 3% or 4% dividend-yielding defensive stocks, why not?”

He’s also looking at the energy sector, where shares have tended to bspounce back whenever oil approaches $30 per barrel and the demand shock isn’t enough to spur further declines. WTI crude dropped as much as 34% to $27 on Monday, the lowest since its 2016 trough.

“The challenge will be to distinguish the economic and earnings impacts that are temporary from those that are long-lasting,” said Perkin at Eaton Vance who manages around $45 billion of equity assets. “Not everything that has fallen will bounce back.”

Dip Buyers Exist Even on a Day When Panic Is Gripping Markets

While cases of the coronavirus look set to climb across the developed world, the bull case -- at least relative to the permeating doom and gloom -- remains that the disease will only mount a temporary challenge to a global economy that was trudging along at a decent pace before that. The stronger-than-expected U.S. jobs data released Friday underscored that point.

Policy makers also look poised to unveil bolder measures to cushion the economic fallout, with the U.S. administration drafting urgent measures and France calling for a “strong, massive, coordinated” response across Europe.

A recovery is likely to take hold from the third quarter onward, as the virus’s shock doesn’t come from fundamental challenges in the economy, Morgan Stanley economists said on Sunday.

Academy Securities’ Tchir thinks now isn’t the time to panic when the S&P 500 is already around the 2,800 level.

“I will be buying some equities, adding some credit risk and shorting treasuries here!” he wrote in a note. “I will also be trying to re-fi my mortgage.”

To contact the reporters on this story: Justina Lee in London at jlee1489@bloomberg.net;Ksenia Galouchko in London at kgalouchko1@bloomberg.net

To contact the editors responsible for this story: Sam Potter at spotter33@bloomberg.net, Sid Verma, Yakob Peterseil

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