Some investors say a buying opportunity for stocks might be just around the corner. - Getty Images
The stock market is tumbling. Wall Street is rife with talk of a possible recession. Even the chairman of the Federal Reserve can’t say for sure what’s coming down the pike.
High levels of uncertainty can make buying stocks, or holding them, unappealing for many investors. But those willing to stomach the short-term fluctuations could ultimately be rewarded with higher returns in the future.
And while few investing professionals are willing to call a bottom just yet, some markets professionals are seeing signs that a buying opportunity for stocks might be approaching.
“Finding a bottom is an art, not a science,” said Adam Turnquist, chief technical strategist at LPL Financial, during an interview Friday with MarketWatch.
“And while this might not be the bottom, we’re likely getting close.”
‘Capitulation’
President Donald Trump’s “liberation day” tariff announcement set in motion one of the most punishing stock-market selloffs since March 2020, when the onset of the COVID-19 pandemic upended the global economy.
And China’s decision to retaliate with a 34% tariff on U.S. imports caused the stock-market rout to deepen on Friday.
By the time the closing bell rang, the market appeared to be entering what Turnquist described as “washed-out territory.”
A few indicators pointed to this. The Cboe Volatility Index VIX, better known as Wall Street’s ”fear gauge” or the VIX, finished north of 40 on Friday. That was its highest end-of-day level since April 2020, FactSet data showed.
An elevated VIX has typically presaged strong gains for stocks over the next year, Turnquist said. Others pointed to the VIX as one sign that the selling might be getting overdone now.
“We are clearly into the capitulatory part of the move,” said Jonathan Krinsky, technical strategist at BTIG, in commentary shared with MarketWatch via email.
“The issue is once you get into this phase, it can go further than you expect,” he added.
A popular sentiment survey released earlier this week by the American Association of Individual Investors showed respondents haven’t been this downbeat on stocks since March 2009. In the past, signs of extreme bearish sentiment have also been reliable signals to buy.
Meanwhile, the share of S&P 500 SPX companies trading below their 200-day moving average stood around 75% on Friday, nearing levels last seen at the S&P 500’s bear-market bottom in October 2022. Back then, roughly 83% of stocks in the index traded below their long-term average before the latest bull market began.
- DOW JONES MARKET DATA
Headline risk
To be sure, while certain indicators can be helpful, there are other factors that investors should consider when weighing whether to buy here or not, said Mark Hackett, chief market strategist at Nationwide Investment Management Group.
“My general feeling is: This is a buying opportunity if you’re thinking six to 12 months out. But if you’re thinking six to 12 days out, maybe not,” Hackett said.
“Technicals are incredibly supportive for this being a buying opportunity a little further out,” he added. “But the binary nature of the headlines right now makes it incredibly difficult.”
Right now, the market is at the mercy of the headlines. A single press release, or Truth Social post, could send stocks ripping higher, or spiraling lower, Hackett said.
Investors got a taste of this on Friday when President Trump touted the possibility of a trade deal with Vietnam. A post on Trump’s social-media platform sparked a rally in shares of Nike Inc. NKE, RH RH and Lululemon Athletica Inc. LULU
Another post touting progress toward a deal with China or Europe over the weekend could cause the market to rebound come Monday, Hackett said.
At the same time, a press release from the European Union laying out plans to retaliate against the White House’s tariffs could cause the selloff to deepen.
Some investors have been unwilling to wait. The retail crowd has been aggressively buying in recent days. But at the same time, institutional funds have continued to bail out of stocks, Hackett noted. Signs that they are once again warming to the market could be a tell that the worst of the pain has passed.
For now, Hackett said he would rather err on the side of caution — especially considering that big corporations will be largely restricted from buying back their own shares during the coming weeks as they prepare to report their quarterly results.
There’s also the matter of economic data. Friday’s jobs numbers for March held up surprisingly well. But investors will be keeping a close eye on future reports for any sign that Trump’s agenda has started to have an adverse effect on growth.
Focus on quality companies
Anybody looking to buy during this selloff should probably focus on shares of quality companies with reliable track records, said Jed Ellerbroek, portfolio manager at Argent Capital Management.
”Generally speaking, the best long-term investments are the highest-quality businesses — the businesses that have durable competitive advantages over their peers,” Ellerbroek told MarketWatch.
“In times like this, when the market is focused on risk and fearful, you see big drawdowns in shares of high-quality businesses, and you get a chance to buy them at valuations that are really attractive and rare,” Ellerbroek said.
Amazon.com Inc. AMZN and Apollo Global Management Inc. APO are two such examples, he added.
U.S. stocks capped off their worst week since March 2020 on Friday, with the Nasdaq Composite COMP falling into bear-market territory. The S&P 500 finished the day down 17.5% from its record high reached in February, while the Dow Jones Industrial Average DJIA has fallen by 15% from its record high reached in late November, FactSet data showed.
