Cameron Dawson, CFA and chief market strategist at Fieldpoint Private, joined Benzinga’s PreMarket Prep show Tuesday morning.
After a modest gain on Tuesday morning, the S&P 500 is about 300 points off of its January intraday low of 4,222.62, but Dawson said investors definitely aren’t out of the woods just yet.
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“We certainly saw oversold conditions emerge at the end of last week, and the bounce that we’ve seen over the past couple of days supports the fact that we’re moving out of that oversold condition. We really can’t decide or judge the ability to say we should be selling rallies or buying dips until we see the health and magnitude and speed and volume of this bounce,” she said.
“When we look and zoom out longer-term, we don’t think that we’re really out of the woods yet to say that we’re going to return to this up and to the right, unflinching rally that we’ve seen over the past let’s call it 20 months, and that’s because of this tighter liquidity environment.”
Beware Bounces: Dawson said investors should get used to elevated market volatility in the near-term, and she cautioned them about getting too enthusiastic just because the market bounces aggressively off of a recent bottom.
In fact, during the bursting of the dot-com bubble from 2000 to 2002, Dawson highlighted five Nasdaq rallies of at least 12% within a bear market that dropped the index 78% from its bubble highs.
“We really have to be disciplined here and very nimble in our trading because if we’re seeing signs that the rally is starting to lose steam, you can make a lot of money in the near-term, but we could see things start to roll over and a correction ensue,” she said.
Value & Growth: Dawson also warned investors that blindly buying value stocks is not the best approach.
“The problem is that cheapest, cheapest decile [of value stocks] usually is also sensitive to liquidity. These are the names that have the worst balance sheets and need to raise capital to raise their businesses,” Dawson said.
At the same time, she said investors need to remember just how much growth stocks benefited from a loose liquidity environment that is likely going away in 2022.
“As we see that liquidity environment start to unwind, the expectation is value stock valuations have a lot less to fall and could even expand if we continue to see a strong earnings environment,” Dawson said.
Opportunity In Asia: One potential opportunity Dawson sees in the market today is Asian equities.
“We think that China is going to really turn on the taps and stimulus post the Olympics … they need to get their economy humming before that 20th party congress for the Chinese Communist Party that comes in October,” Dawson said.
However, given the unpredictability and inconsistency of Chinese policy, particularly in cracking down on its own tech companies, Dawson said a better way to play Chinese stimulus may be to bet on other Asian economies that benefit from a strong Chinese economy, including Korea.
PreMarket Prep is a daily trading show hosted by prop trader Dennis Dick and former floor trader Joel Elconin. You can watch PreMarket Prep live every day from 8-9 a.m. ET Benzinga’s YouTube channel, and the podcast is on Spotify, iTunes, Google Play, Stitcher and Tunein.
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