A firm overseeing more than $1 billion in assets is cutting its equity holdings, believing that cash is king under current market conditions.
In a new BNN Bloomberg interview, Key Advisors CEO Eddie Ghabour says he doesn’t think that buying dips now is a solid strategy.
According to Ghabour, the market will likely see more downside price action in the near term.
“The market’s going to continue to trend down, in our opinion, because this energy shock is devastating for many economies around the world. And we are a global economy. So we probably won’t go to 100% cash. But we probably won’t be any more than 20% invested in equities. And that’s a significant takedown in risk.
But we don’t believe these markets are a buy-and-hold market. You’ve got to be tactical in our opinion, because if you want to take advantage of drops, you have to position yourself accordingly to be able to do that. And I think the buy-and-hold strategy is one that’s going to be painful here.”
Ghabour warns that inflation will once again rear its ugly head, forcing the Fed to hike rates, which would trigger more sell-offs.
“So, normally, you’re going to get the inflation first, and the bond market is screaming that, ‘Hey, inflation is going much higher.’ The 10-year has gone from 4 to 4.4 in a very short period of time. So, I believe by the time we’re going into the mid-second quarter, which we are approaching, we’re going to start to see the economic data show some slowing. We already were showing some slowing pre-attacks, and now this is just going to expand.
So we’re going to get the inflation first, rates are going to go higher in our opinion and then you’re going to start to see the downtrend. And that’s when you’re going to start to really see selling more than likely accelerate on the equity markets…
Based on how we’re seeing things, we’re going to be down double digits before we can even consider buying back in.”
But once the market bottoms, Ghabour says Key Advisors would be looking into accumulating beaten-down tech stocks.
“We’ll probably be buying the things that we sold. Technology has taken a beating and continues to take a beating. We think we’re going to be able to buy some high-quality tech names much lower than where they are now. So technology is going to be an area of focus.
And then we’re going to be looking at industrial small-caps and some economically sensitive areas. Because when you have a war, a lot of times after the dust settles, it’s very good for economic activity because you have to rebuild things. So we’re going to be in those areas as we go ahead. But again, we’re not close to a bottom right now, but there are going to be some fantastic opportunities, and we think the setup, if you play it right, will be a year-end rally to new highs.”
As of Friday’s close, the S&P 500 is trading at 6,368, down over 7% year-to-date.
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