Market veteran says we may be 'a long way from a new bull market' and shares what to buy and avoid

Published Wed, Apr 5 20238:23 PM EDT

The stock market ended the first quarter on a strong note. The tech-heavy Nasdaq 100 was the standout performer after rallying more than 20% from its December lows. That puts the index in a technical bull market — widely defined as a gain of at least 20% from a 52-week low. That outperformance is getting investors excited and is prompting talk that a new bull market is in the cards. But market veteran David Dietze said he believes the stock market is getting ahead of itself. "Some technically define the start of a new bull market as a 20% rise from a recent low, and under that definition the Nasdaq meets the test, but not, however, the S & P 500 , up only about 14% since its October low," Dietze, managing principal at Peapack Private Wealth Management, told CNBC's " Street Signs Asia " on Tuesday. "Others have trouble calling a market movement a new bull market until the market at least attains its prior all-time high point. In that sense, we are a long way from a new bull market as the Nasdaq is still down nearly 30% from its peak, while the S & P 500 is down just under 15%," he added. Dietze said inflation remains the "number one" headwind in the market. "That keeps interest rates high, the [Federal Reserve] aggressive, and makes consumer spending more challenged. Higher rates make consumer big ticket items more expensive, companies' capital expenditures pricier, while also making bonds more competitive relative to stocks," he said. How he's positioning For starters, he said, investors should remain invested in the stock market, despite the appeal of higher-yielding money market funds and short-dated Treasurys. These short-term rates can "come down as fast as they went up," he warned. "It is very risky to try to time the market between cash, even if higher yielding, and stocks," he said. Dietze is also remaining "constructive" on small-cap stocks, though the sector has been a laggard this year. The sector has a track record of outperformance, according to Dietze, and could be due for a bounce. Their underperformance this year means now could be a "good time to enter from a valuation perspective," he added. Among the bigger-cap names, he likes Western Alliance Bancorp for its 25-year low valuation and rich cash flows; Comcast for its stock buybacks and "generous" dividends, as well as Boston Properties for its "class A property ownership in key, blue-chip cities." Be wary of so-called safe havens The recent banking turmoil on Wall Street sent many flocking to so-called safe havens, such as gold, cryptocurrencies and bonds — but Dietze is urging caution. "Amid the banking crisis, the Nasdaq continued to do well, which seems anomalous in light of the dire headlines around the banking system. It does seem as if there has been a flight to perceived safety, whether that means gold, [which went] briefly above $2,000/ounce; Bitcoin, which charged above $28,000 recently; [and] bonds, which saw some of their biggest plunges in yields since the Crash of 1987," he said. Share prices of mega-cap tech stocks such as Microsoft and Alphabet have also seen significant gains in recent weeks, which Dietze said is "without any fundamental justification." "Any relaxation of tensions could reverse those gains," he warned.