Invesco: Stay The Course (But Where's The Buy Signal?)

(Bloomberg) Investors should stick with their stocks despite the sell-off this week because it would be harder to time the market and get back in, according to Brian Levitt, global market strategist for North America at Invesco.

U.S. equities suffered one of the deepest sell-offs of the year on Wednesday as mounting signs of a global economic slowdown stoked fears of a recession. The slump came as a key portion of the bond curve inverted -- meaning short-term rates were higher than long-term yields -- an indicator that’s previously been a recession warning.

“Long-term investors who broke from an investment plan this week because the yield curve briefly inverted will likely regret it,” Levitt said, adding that “I don’t think we’re going into a recession.”

He cited factors that may push stocks higher, including his expectation of a September rate cut by the Federal Reserve. The S&P 500 index will probably end the year around 2,900, slightly ahead of the close on Friday.

Low Rates?

“We’re in a growth starved world with no inflation and interest rates that will stay low for a long time,” he said, reiterating his prediction in 2010 that interest rates will stay low “for the rest of our careers.”

Levitt isn’t alone in making the call for investors to stay in stocks. Mariann Montagne, a fund manager at Gradient Investments, which oversees $2.3 billion, said earlier this week that it may be quite awhile before a recession hits, and “we have a lot of money to make between now and then.”

Still, others are raising concerns about growth prospects. The U.S. and world economies are at their riskiest moment since the 2008 global financial crisis as trade tensions escalate, former Treasury Secretary Lawrence Summers said on CNN last weekend. Goldman Sachs Group Inc. also said fears of a U.S. recession have risen with the trade war. The University of Michigan’s confidence index slumped in August to a seven-month low.

“We have been calling to take profits and recalibrate for some time,” Tuan Huynh, chief investment officer for Asia-Pacific at Deutsche Bank Wealth Management, said in a Bloomberg Television interview earlier in the week. “Even though the market seems to recover in the short term, we are not ready yet to redeploy the cash we took out from the equity market some weeks ago.”

Stocks Rise, Treasuries Fall on Stimulus Bets

For Levitt, a memory from when he was 11 still serves as his guide to stay put amid volatility. After the Black Monday sell-off in 1987, his father had come home and said the stock market lost almost a quarter of its value in one day. A $100,000 investment that Monday morning would only be $75,000 by dinner time -- but that would be worth $2 million if it was held until today, he said.

“The 1987 story is to suggest that even in a really bad event, investors were better served staying the course,” he said. “Once investors break from the plan they make it very difficult for themselves.”


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