From Record Highs To Bear Market In 21 Days: BofA Says To Avoid Panic Selling, Focus On Quality Stocks

The COVID-19 pandemic has stalled the longest-ever bull market, and the plunge from the market peak into the bear territory occurred in a record 21 days.  

As the market teeters on the brink, an analyst at BofA Securities outlined what an investor can do at this juncture.

Panic Selling A ‘Strict No-No'

Historically, the S&P 500's best days generally follow its worst days, BofA equity and quant strategist Savita Subramanian said in a note.

"And since the 1930s, if an investor sat out the 10 best return days per decade, his/her returns would be just 91% compared to 14,962% returns since then," the analyst said.

The S&P 500 Index is down about 27% compared to the median bear market decline of 34% since 1929, she said. 

"For equity investors, the best recipe for loss avoidance is time: as time horizons lengthen, the probability of losing money in stocks has decreased." 

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High-Quality, Safe Dividend Stocks Better Bets

As treasury yields hover near all-time lows and credit spreads and VIX signal heightened risk aversion, high-quality stocks are the best bets until credit conditions stabilize, Subramanian said.

High-quality stocks are the best hedge against volatility, generating positive returns over every rolling 10-year period, even excluding dividends, the analyst said. 

"In fact, even if EPS fell by 20%, the payout ratio would only reach 50%."

Even for investors with a one-year investment horizon, stocks still appear extremely attractive relative to bonds, especially high-quality companies with safe dividends, according to BofA. 

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