US Markets

Battle between bots and buybacks juicing volatility: Trader


Investors shouldn't make too much of day-to-day volatility and instead focus on long-term bull market prospects, Charles Schwab's chief global investment strategist said Tuesday.

Jeffrey Kleintop said the catalysts behind extreme market movements are not entirely clear, but he believes volatility is increasing in part due to computer-driven trading and companies with excess capacity left in their share buyback authorizations.

"I think a lot of what we saw on these up days is maybe buyback driven, and a lot of what we see on the down days is maybe program trading driven. You've really got the bots versus the buybacks pushing the market in different directions here," he told CNBC's "Power Lunch."

Major U.S. averages rallied more than 2 percent Tuesday, with the Dow Jones industrial average rising more than 350 points. The move came after the index capped off the second worst week of the year Friday with a 272 point, single-day dip.

Markets were closed Monday for the Labor Day holiday.

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Charles Schwab has been neutral on stocks throughout the year and remains so, Kleintop said. The firm recommends investors maintain their long-term targets as volatility picks up.

Despite concerns about global growth, Charles Schwab also suggests investors allocate 35 to 50 percent of their equity investments to international markets.

Kleintop told CNBC concerns over a global recession due to slowing manufacturing are overdone because the service economy is improving. In China, services will likely account for a record-setting half of total GDP, he added.

Traders work on the floor of the New York Stock Exchange.
Brendan McDermid | Reuters

Investors need to monitor whether weakness in the world's No. 2 economy spreads to other countries, but at present, the probability of a global recession is low and monetary and economic conditions remain good, said Hugh Johnson, chairman of Hugh Johnson Advisors.

After hitting a wall of overvaluation prior to the selloff, the is now about 10 percent undervalued, a level not seen since October, he told "Power Lunch."

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At the same time, market sentiment on stocks has soured, creating a buying opportunity, Johnson said.

"You rarely get this level of undervaluation combined with widespread pessimism, and that's a good combination," he said.