Wall Street pro predicts when the S&P 500 will rally — and reveals how to trade it
Investors are bracing for more volatility ahead, as they navigate what has traditionally been a “seasonally weak” period for stocks . Major U.S. averages closed out their third negative week in a row last week, weighed down by fears that the U.S. Federal Reserve will continue to pursue aggressive interest rate hikes to temper inflation. “With the Federal Reserve’s hawkish comments, volatility has returned to the marketplace and the S & P 500 seems to be trying to retest some of its earlier lows of the year,” Phil Blancato told CNBC “Street Signs Asia” on Friday. The president and CEO of Ladenburg Thalmann Asset Management, which has more than $4 billion in assets under management, said he expects the S & P 500 to remain volatile “at least for the next six weeks.” “Historically, volatility tends to rise in September and October, especially in the years leading up to midterm elections. But equities tend to rebound strongly in the following months, turning positive shortly after, suggesting that patience and investment discipline will likely be key in the months ahead,” he added. While the next few weeks will see higher market volatility, Blancato believes a “strong rally” for stocks is on the cards as valuations improve, the Fed becomes less hawkish and the U.S. stays out of a recession. The second week of October has traditionally been the “beginning of the year-end rally,” while inflationary pressures would have sufficiently eased by then for the Fed to reconsider its stance, he said. What to buy on the dip Blancato believes this is a “great opportunity” to buy on the dip, with “wonderful names” that are now significantly less expensive than they were just a couple of weeks ago. He favors dividend-paying stocks and companies with good cash flow. “I like volatility. I take advantage of markets like this,” he said. He likes Costco as “one of the dominant” warehouse retailers with pricing power and a “distinctive” membership business model. He says the company will benefit as consumers favor discount stories amid high inflation, while other positives include its expanding e-commerce presence and rising dividends. He also likes ExxonMobil , which he described as the “benchmark” for the energy sector. The oil giant has significantly less debt relative to its peers, according to Blancato. And the expansion of its share buyback program is driving shareholder value, he added. Cybersecurity firm CrowdStrike made Blancato’s list. He expects the company to benefit immensely from “massive growth” in the industry. The company also has a strong balance sheet, he added. Bottoming in consumer confidence a positive signal A bottoming in consumer confidence also bodes well for the market, according to Blancato. In July, the University of Michigan Consumer Sentiment Index fell to its lowest point on record with a reading of 51.5 — just the fourth time in its history that the index had dropped below 60. “A bottoming out in consumer attitude tends to be followed by favorable market performance,” Blancato said. In the three previous instances when the sentiment index fell below 60, the stock market traded higher in each of the following six- and 12-month periods, he added. The S & P 500 saw an average increase of 16% over the next six months and 20.9% over the following 12 months, according to Blancato.