Should Investors Be Worried About The 'Fear Of Fed' Correction?

In a recent report, analysts at Canaccord Genuity gave their take on the recent stock market pullback. They believe that the worst is yet to come for this correction, but investors should not be concerned that the markets are on the brink of the next U.S. recession.

Rate-Hike Correction

Analysts have predicted that a 5-10 percent correction will occur during the months leading up to a potential Federal Reserve rate hike in June. Analysts believe that last week's spike in bond yields and drop in equities in response to payroll numbers are indications that others now agree that a "Fear of Fed" stock market correction is imminent.

The Best Defense Is A Good Offense

According to the report, investors should fight the urge to get defensive in times such as this.

Analysts compare the current environment to skiing down a steep slope: It's actually safer to ski more aggressively than to take a tentative approach.

Related Link: When Should The Fed Raise Rates?

When it comes to the stock market, analysts point out that higher interest rates typically lead to under-performance by high-yield defensive stocks. Therefore, playing it safe by switching to defensive names at this point could be a costly mistake.

Although this correction could make for a challenging few months for investors, analysts believe that there is no indication that the U.S. is headed for a recession within the next couple of years.

Buy The Dip

In the meantime, Canaccord maintains its bullish stance on stocks.

If the S&P 500 continues its pullback or breaks out to the upside, Canaccord will be buying stocks. Analysts intend to target certain sectors, including Financial, Info Tech, Industrial and Health Care.

Canaccord has a year-end target of 2,340 for the S&P 500.

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