(Bloomberg) -- As the market swooned last week, Edward Park plunged in.
The chief investment officer at Brooks Macdonald Asset Management went looking for beaten-up megacap companies after the most turbulent stretch for stocks since the dark days of the pandemic. His payoff came when Apple Inc. earnings helped spark an audacious market rebound with the S&P 500 wiping out all losses for a 0.8% gain on the week.
“Because of the price action in growth in particular we've been picking up large cap growth companies, that's been a particular focus,” Park said in a telephone interview. “We are carrying on doing that.”
After a bruising new-year rout U.S. equities are advancing Monday, and money managers like Park are keeping the faith in the dip-buying strategy that rewarded them so richly last year.
On Friday, investors funneled $1.36 billion into the Invesco QQQ Trust Series 1, the biggest Nasdaq 100-tracking exchange-traded fund, trimming outflows this year to $6.6 billion.
Dip-buyers have history on their side. Down almost 10% from its January peak through Thursday, the S&P 500 has entered territory that historically has tended to reward bottom fishers. Buying the S&P 500 10% below its high has generated a median return of more than 15% during the next year, delivering gains 76% of the time since 1950, according to Goldman Sachs Group Inc. data.
The bank projects the index will round out the year at 5,100 -- a whopping 21% gain from last week's intraday lows.
“Market corrections are typically good buying opportunities if the economy is not entering into recession,” Goldman Sachs strategists led by David Kostin wrote in a note.
As markets adjust to the era of rising rates, the tech-heavy Nasdaq 100 is poised to post its steepest January decline since 2008 while the S&P 500 is down more than 5%.
But the corporate-earnings outlook continues to anchor a bull case. About 80% of companies that have reported so far this season have beaten projections. While S&P 500 profits were estimated to expand 24% in the fourth quarter -- half the rate seen in the previous period -- that's still more than twice as fast as the 10-year average, according to data compiled by Bloomberg Intelligence.
Bottom Fishing
Investors can avoid the risk of sinking big allocations at the tech-market peak via a strategy known as dollar-cost averaging, according to Kristina Hooper, chief global market strategist at Invesco.
“This is a buying opportunity for those who are willing to dollar-cost average so that they are able to participate in what might be a bottom,” Hooper said.
Hooper and her colleagues are forecasting the S&P 500 will gain more than 9% by the end of the year, though she's not ready to call the bottom just yet and sees more volatility ahead.
Peter van der Welle, a strategist within the fundamental multi-asset team at Robeco Institutional Asset Management, an enthusiastic dip-buyer in November, has turned cautious. He's worried that the inflation-fighting resolve of U.S. policy makers means they're less likely to step in to support financial markets, a phenomenon known as the Fed Put.
“The dip is not as easily bought as previously,” he said.
But for Park at Brooks Macdonald, fears that a hawkish Fed will stall the economy are just another reason to favor established megacaps. They've been the market's go-to fallback during the worst of the pandemic era.
“The shifting nature of the sell-off we believe is more supportive of growth equities,” he said.
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