The S&P 500 may have recovered for two days in a row, but it’s still about 5% off its record high set last month. While that may be a bit of a bummer for bulls, some strategists see an opportunity.
Goldman Sachs Group Inc. likes buying call options, derivatives that make money when a stock’s price rises, on companies that have underperformed over the past week and where the firm sees upside. Bank of America Merrill Lynch has a U.S. strategy group that is picking stocks relatively insulated to the macro environment, and an Asia team bullish on defensives.
“The U.S.-China trade war has now escalated into a potential currency war,” BofAML U.S. strategists led by Savita Subramanian wrote in a note Aug. 7. “With trade drama heating up, macro is now impacting micro: earnings revisions and guidance reflect weakening corporate confidence.”
Subramanian’s group recommends stocks that have limited exposure to trade but leadership in market share, such as Walt Disney Co. and Advanced Micro Devices Inc.
Goldman strategists including Vishal Vivek and John Marshall in an Aug. 7 note recommend buying calls on the likes of NetApp Inc., Deere & Co. and Target Corp., which make their list of companies that endured last week’s market sell-off and have upside potential.
Investors have been whipsawed in recent days amid tit-for-tat announcements about trade. President Donald Trump said last week the U.S. would impose tariffs on a further $300 billion in Chinese imports as of Sept. 1, and China promised to retaliate.
The yuan sinking below the key level of 7 to the dollar fueled fears that the trade tiff would morph into a currency war. Bonds yields globally have reached new lows amid concern about the health of the world economy. Still, some strategist say this is an opportunity to buy more stocks.
BofAML’s Asia strategists led by Ajay Singh Kapur suggest both stocks to purchase and some to avoid. Defensive buy ideas include Altium Ltd. and Shenzhou International Group Holdings Ltd., while their cyclical underperform-rated names include Great Wall Motor Co., Mitsubishi Chemical Holdings Corp. and Keppel Corp.
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