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Should Investors Take Some 'Chips Off The Table' Or Sell Before 'Rolling Bear Market' Begins?

Should Investors Take Some 'Chips Off The Table' Or Sell Before 'Rolling Bear Market' Begins?
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Major U.S. indices have erased a few months of declines and are now positive for 2018. Should investors be taking some "chips off the table" or fully cash in before a "rolling bear market" begins? Two analysts shared their respective somewhat-bearish and very bearish outlooks.

The Analysts

Federated Investors' portfolio manager Steve Chiavarone and Morgan Stanley's Michael Wilson discussed their outlook on CNBC.

Some 'Chips Off The Table'

Over a six-to-nine-month period, the S&P 500 index should move higher from the 2,830 level to 3,100, Chiavarone, one of the market's most notable bulls, told CNBC. But over the near-term, the markets need to navigate through a midterm election, which typically results in stock pullbacks, he said. This year's midterm election is noteworthy, as the ongoing "big trade rhetoric" taking place could result in a 5-8 percent decline in stocks, Chiavarone said.

Investors may want to sell some of their positions ahead of a near-term drop, but cash from stock proceeds should be put back in to the market closer to the start of the fourth quarter, he said. After all, many longer-term catalysts remain in place, including economic growth, a potential for inflation to surprise to the downside and the Federal Reserve introducing fewer rate hikes than expected in 2019.

"That will allow markets to melt up," he said.

Related Link: Trump Weighs In On The Federal Reserve: 'I'm Not Thrilled'

'Rolling Bear Market'

The stock market is signaling a cautious tale in that every sector within the S&P 500 index, except for technology and consumer discretionary, has gone through a 20-percent correction in valuation, Wilson told CNBC. A "rolling bear market" could be imminent if the concerning valuation trend extends to the technology and consumer discretionary sectors — which may be the case based on Netflix, Inc. (NASDAQ: NFLX) and Facebook, Inc. (NASDAQ: FB)'s 20-percent decline.

"It doesn't make sense for these groups to be untouched in this rolling bear market from a valuation perspective when every other sector has already been hit," he said.

Wilson said he expects the S&P 500 index to end the year at 2,750, which implies a 3-percent decline from current levels. Nevertheless, certain value stocks in sectors like energy, utilities, industrials and financials remain attractive as investors shift away from growth names,Wilson said.

Posted-In: CNBC Federated InvestorsFutures Top Stories Federal Reserve Markets Tech Media Best of Benzinga


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