The current stock sell-off is nearly over and shares that outperformed in previous drawdowns could rally this time around, according to Trivariate Research. The S & P 500 is on pace for its worst month since March 2020. The technology-heavy Nasdaq Composite is down roughly 15% from its intraday record. The pullback in equity markets comes as investors brace for the Federal Reserve to tighten monetary policy. Markets shuddered last week as Fed Chairman Jerome Powell said there was "quite a bit of room" to raise interest rates before it would hurt the economy. "There is a high correlation between changes in perceptions about interest rates and the stock market. Powell's message ... apparently confirmed the recent perception change," Adam Parker, former Morgan Stanley chief U.S. equity strategist and founder of Trivariate Research, said in a note Friday. "The last weeks of market activity bear many of the hallmarks of a classic growth scare," Parker added. The Nasdaq's pullback is the sixth worst since 2008, while the S & P 500's sell-off is the 11th worst, according to Trivariate's analysis. "For the Nasdaq, this drawdown has been lengthier, and one of the worst since the financial crisis other than the initial Covid trade. Based on the magnitude of 'typical' post-financial crisis corrections, we think it is reasonable to assume this drawdown is roughly 80% over," Parker said. Stocks should keep going higher as U.S. corporate earnings continue to grow and push up the market, according to Trivariate. In order to find the stocks that work for the moment, Trivariate looked at which industries typically do best after a sell-off is roughly more than 80% over. The firm identified software, health-care services and materials as the best performers from that stage forward. Growth metrics have also historically worked best to determine winners from 80% of the way through a drawdown until three months after it ended, Trivariate found. Using these historic industry and signal outperformers during sell-offs, the firm recommends buying materials, software with profit and health-care services that screen well on growth-oriented metrics. Take a look at five stocks Trivariate recommends: Intuitive Surgical is one name Trivariate highlights. The stock recently struggled after reporting quarterly results, but Piper Sandler on Monday upgraded Intuitive Surgical and said the "recent pullback offers investors an attractive entry point into a premier medtech name." "Simply put, ISRG has executed well during the pandemic both from an operational and financial standpoint," Piper Sandler's Adam Maeder said. Trivariate also recommends CrowdStrike in this stage of the stock sell-off. Citi last week named the cybersecurity-technology stock as one of its "key bullish calls" in the infrastructure software space. "The cybersecurity, developer/IT Ops tools, and networking arenas inside the infrastructure software realm are colliding. ... The onslaught of remote work, ongoing democratization/dispersion of the corporate network, and voluminous nature of cyberattack activity is revolutionizing the enterprise IT footprint, and accelerating the unification of previously siloed buying centers," Citi's Fatima Boolani said. Other names Trivariate likes are construction stock Vulcan Materials , medical device maker Abiomed , and oncology company Guardant Health . —CNBC's Michael Bloom contributed reporting.
CrowdStrike IPO at the Nasdaq exchange June 12, 2019.
The current stock sell-off is nearly over and shares that outperformed in previous drawdowns could rally this time around, according to Trivariate Research.