Investors should treat the stock market’s recent plunge as a buying opportunity, at least for the time being, according to a strategist at RBC Capital Markets.
“While the sharp decline in the S&P 500 on Monday was unnerving, it is important to keep in mind that these kinds of moves have tended to be buying opportunities in the post Financial Crisis era,” Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets, said in a note Tuesday.
The S&P 500 had its biggest one-day decline since August 2011 on Monday, while the Dow Jones industrial average shed more than 1,100 points. Both indexes also lost their gains for the year. On Tuesday, U.S. stock futures pointed to further losses.
The pullback in stocks comes after a strong start to the year. The Dow and S&P 500 notched all-time highs as well as sharp gains for January. But worries of rising inflation have recently pushed interest rates to multi-year highs, sending jitters down Wall Street. Investors worried that higher inflation would lead the Federal Reserve to tighten monetary policy faster than the market expects.
The 10-year U.S. note yield traded at 2.73 percent on Tuesday and hit a four-year high on Monday. The yield started 2018 trading around 2.4 percent.
“For now, we are buyers on the dip,” Calvasina said. “Even taking into account some new signs of stress on the Sentiment indicators that we track, and acknowledging that economic surprises have softened, we see more positives than negatives for US equities.”
She also notes that dealmaking and “cash deployment” are still likely to ramp up this year, while earnings continue to be strong and economic recession risk remains low.
Calvasina is not the only strategist recommending investors to buy this dip. Late Monday, J.P. Morgan’s Marko Kolanovic said he saw this pullback as a “buying opportunity.”