Here's what five experts say investors should watch.
Darrell Cronk, CIO for wealth and investment management at Wells Fargo, is keeping an eye on key levels for the S&P 500.
"I think we did get a little bit overextended. We were probably almost 75% into a retracement from the March 23 lows which is extremely high on a retracement. We did break the short-term 20-day moving average at the end of last week. We will probably go through the 200-day moving average, which is the support level. And if we get down to around 2,910, that's the 50-day moving average. So, you would have kind of the trifecta of breaking the 20-day, the 200-day and the 50-day simultaneously, which would put some more downside probably to the equity markets in the near term."
Kevin Giddis, chief fixed income strategist at Raymond James, said the Treasury market could be sending a signal to equity investors.
"Two distinct events last week that we've talked about a lot – one was the dovish Fed and their call for not even thinking about raising rates until 2023, and the rise in Covid-19 cases as the U.S. economy reopened. One thing I will point out, while the equity volatility was quite high, bond volatility went down last week, and I think that is the Treasury market in particular saying, 'Hey, this recovery is going to take longer than people think.' It also is a credit to the Fed and the Treasury for what they did back in March, which settled the credit markets down."
Sarat Sethi, managing partner at Douglas C. Lane & Associates, is picking out some beaten-down stocks.
"I do like some of the companies out there … Chevron, General Motors are companies that we're adding to, they're down over 20% for the year. This is going to be more about the duration. These companies are going to be solvent, they're going to be fine and I would add to them. I would add to some of the large-cap banks – JPMorgan, Bank of America, Morgan Stanley. And then on sell-offs like we get, the high-quality companies that we kind of added to in the early part of the sell-off, you can go to the Lowe's of the world, the Disneys of the world – the companies that have the balance sheets and that are going to get through these fits and starts."
David Gerstenhaber, CIO of Acorn Advisory Capital, is concerned over how expensive stocks have become.
"I think valuations are unsustainable at current levels. I think the economy will disappoint in the fall particularly as the government stimulus programs begin to wind down. I think valuations are excessive and, in particular, I think that we will see a little surge in actual activity now as cabin fever gets people out. But, I think that's short term in nature and over the next couple of months, I think you'll see more disappointing data that the market will have to come to terms with."
Mohamed El-Erian, chief economic advisor at Allianz, sees the influx of retail investors as a positive.
"It is a good thing to have more retail participation in this market. It's a good thing that it be based on transparency and information. And what the retail sector got absolutely right is your rotation rate. They were ahead of everybody else, they understood that you would have a rotation from stay-at-home to reopening stocks, from leaders to laggards, and they did very well up to last week."