It’s a contrarian call, but a hopeful one.
Stocks appear to be primed for a rebound after a historic down day for U.S. markets, Matt Maley, chief market strategist at Miller Tabak, told CNBC’s “Trading Nation.”
The day’s trading saw the Dow Jones Industrial Average endure its worst decline since the 1987 market crash known as Black Monday, falling 2,352.60 points, or 10%, deeper into a bear market. The S&P 500 on Thursday fell 9.5% and entered bear-market territory of a 20% decline from its recent high.
On Friday, future prices for both indexes were pointing to more than 5% gains at the opening bell.
“We’re starting to see some signs of real capitulation in the last couple of days,” Maley said in Thursday’s interview.
Capitulation occurs when investors decide to sell out of stocks, or the market entirely, effectively giving up on any potential future gains.
With trading volumes skyrocketing and whole swaths of the market hitting new 52-week lows, the panic could lead to a sustained bounce in equities sooner rather than later, the strategist said.
“You combine that with the oversold condition after this 25% decline over such a short period of time, and you’re seeing that capitulation [that] I think could and should lead to a short-term bounce. And it’ll be more than just the one- or two-day bounces that we’ve seen over the last week or two,” Maley said.
Mark Tepper, president and CEO of Strategic Wealth Partners, sees the odds of a recession occurring “going up every single day.”
“It’s almost certain that there’s going to be a negative GDP print in Q2,” Tepper said. “We have this self-imposed, man-made recession that we’re forcing ourselves into by essentially self-quarantining everyone.”
Taking a step back, Tepper asked investors to “look at the math.”
“The market’s already down 25% from its peak,” he said. “In a bear market, whether there’s a recession or not, the drawdown is in that 25-30% range. So, I agree with Matt. You are almost there.”
If and when stocks do bottom, Tepper said one of two things could happen.
“If you’re following a recession, you’re up 35-40%,” he said. “Following a nonrecession bear market, you’re up 25-30%. So, my take is if you haven’t blown out of stocks yet, I would not be doing it right now.”
Instead, Tepper suggested investors “be active” and “take advantage” of the many opportunities this sell-off is creating.
” Warren Buffett says, ‘Be greedy when others are fearful,’ right? So, I think it’s the perfect opportunity to be rebalancing from bonds into stocks,” he said. “However, behavioral finance says that most people aren’t going to do that. They’re going to sell when stocks are low. So, if you can do the exact opposite, I think it’s going to reward you 12 to 24 months from today.”
If stocks do bounce, Maley said, Treasury yields could soon follow.
Overall, yields are “extremely oversold on a technical basis,” Maley said, adding that the 10-year yield is “about as oversold as you’re ever going to see.”
“Once … stock prices start to bounce a little bit, these things are going to shoot up very quickly. So, I think, … as an offshoot, if you’ve been thinking about refinancing your mortgage, now is a really good time to do it,” he said. “If I’m wrong, you can refinance again in a few months and make up for it. But, boy, there’s a good chance that we’re not going to see rates as low as they were at the beginning of this week for quite some time.”