Time to sell or buy the dip? Here's how pros suggest trading Wall Street sell-off

Published Sun, May 22 20228:12 PM EDT

With the recent carnage on Wall Street, CNBC Pro asks strategists and investors what's next for stocks and where they see pockets of opportunity in the weeks ahead. U.S. stocks briefly fell into bear market on Friday, as the broad-based S & P 500 fell as much as 20.9% from its all-time high in January at one point in intra-day trading, before closing slightly higher. Nevertheless, the index posted its seventh straight week of losses, its longest down streak since March 2001 as investors continue to get whipsawed by recessionary fears, inflationary concerns and expectations of an aggressive rate hiking cycle. But some market participants think there are still opportunities for investors to selectively buy the dip. "The recent de-rating of equity multiples due to higher real rates may provide investors a reasonable entry point given how stretched equity valuations have been over the past two years," Marcella Chow, global market strategist at JPMorgan Asset Management, told CNBC. She believes the information technology sector could provide opportunities for long-term investors, given the moderation in valuations in the sector and longer-term growth prospects. "The information technology sector should see strong earnings growth given secular demand for software products and services as well as continued demand for hardware," Chow added. Todd Jablonski, chief investment officer for Principal Global Asset Allocation at Principal Global Investors, believes it's not time to "run for the hills" despite the challenging backdrop. The firm manages more than $700 billion as of Mar. 31. "Equities have proven their resilience and it's been surprising to many investors just how resilient stocks can be to exogenous forces," Jablonski said. Despite cheaper equity valuations, he warned that "returns will struggle" without the tailwind of easy financial conditions and positive earnings growth. Jablonski said he prefers U.S. stocks given their relative resilience to the Russia-Ukraine conflict and fundamental economic strength. Importance of staying invested Thomas Poullaouec, head of multi-asset solutions for Asia-Pacific at T. Rowe Price, believes that an investor's unique investment goals and horizons will determine their approach to the stock markets. "For long term investors like the ones planning for their retirement, our research will show that it's important to stay invested in the long term. While there are periods of volatility like this one along the way, establishing the proper asset allocation and diversifying their investments can help mitigate the impact of volatility on their portfolio," Poullaouec said. He noted that the S & P 500 has experienced double-digit annual losses in just 13 of the last 94 years through 2021. "While one-year returns may fluctuate dramatically, investors need to keep in mind that stocks have never lost ground, double-digit or otherwise, in any rolling 15 calendar year period since 1928," he said. "Therefore, a long-term investor can feel more confident holding on to stocks, even if he experiences short-term declines," Poullaouec added. The asset manager highlighted selective opportunities that he believes are "worthy of investors' attention." His fund has increased its exposure to Asia ex-Japan to a modest overweight due to the prominence of the re-opening thesis in the region, where inflation is also "less of a concern" relative to other regions, according to Poullaouec. Australia is another "attractive market" due to its rising earnings forecasts and "solid domestic demand," he added. Read more Here are the ETFs that are working during this brutal year Strategists reveal how they're trading tech stocks — and the same names keep coming up As stocks edge near bear market, it will be the economy that decides where the sell-off ends Likewise, Michael Purves, founder and CEO of Tallbacken Capital Advisors, believes that while the likes of Microsoft and Alphabet are being revalued against the backdrop of rising interest rates, these stocks have "amazing" financials and cash balances to help support earnings growth through share buybacks. Purves said he sees a lot of "tactical bounces" in stocks that have been "really beaten up" over the last couple of weeks. This includes high quality small-cap mining stocks, he said. Purves also favors energy and materials stocks as a hedge against rising inflation.

A Wall Street sign is pictured at the New York Stock exchange (NYSE) in New York, March 9, 2020.

Carlo Allegri | Reuters

With the recent carnage on Wall Street, CNBC Pro asks strategists and investors what's next for stocks and where they see pockets of opportunity in the weeks ahead.