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Investors and Traders: Don’t Panic, There’s Still Opportunity in the Market

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Investors and Traders: Don’t Panic, There’s Still Opportunity in the Market

Armored vehicles of Burgarian Army during the Gergiovden parade in Sofia, Bulgaria.

War and Its Impact on Markets

War is undeniably a tragic event that brings misery and suffering. However, in the context of financial markets, the impact of a war where our soldiers are not directly involved is typically limited. While recent conflicts and geopolitical tensions have caused temporary disruptions, such as higher food prices and increased oil prices, they have not drastically altered the overall market trajectory.

The Temporary Nature of the Effect

Looking back at historical examples, such as the Iraq war, we can see that market volatility and uncertainty often precede military actions. However, once the conflict officially begins, markets tend to rally. This is likely to be the case with current events as well. While there may be short-term selling and potential panic in the markets, the long-term upward trend is expected to continue.

Seasonality and Positive Outlook for Stocks

Seasonality suggests that stocks should start rallying around this time of the year. Historical data shows that the S&P 500 tends to rise during the period from mid-October through the end of the year, with an average gain of 6.8%. This positive trend, coupled with the anticipation of Q3 earnings growth and continued technological advancements, presents an encouraging outlook for investors and traders.

Reasons for Market Volatility

  • Uncertainty surrounding the selection of a Speaker of the House, which could impact emergency bill transpiration.
  • Potential for the Hamas conflict to escalate, leading to speculation of US involvement.
  • Possible US special forces intervention to rescue kidnapped Americans.
  • The start of earning season, with focus on the growth of earnings for companies.

Why You Should Stay Bullish

Despite the current discouraging news flow, there are several factors supporting a bullish stance. The House of Representatives is expected to resolve its leadership issues, bringing stability to the legislative process. Strong Q3 earnings reports, particularly from the banking sector, have the potential to exceed expectations. Additionally, the deployment of a carrier group in the Mediterranean helps deter aggression, and the Federal Reserve’s decision to maintain interest rates at a “normal” level further fuels economic growth. Therefore, it is advisable to resist panic selling and consider the following investment opportunities.

Tech Stocks with Growth Potential

Large-cap tech companies like Amazon (AMZN), Alphabet (GOOGL), and Nvidia (NVDA) continue to be solid investment choices. The enterprise spending on cloud technology and artificial intelligence development remains robust, providing a favorable market environment for these companies. Other notable tech names to consider include ServiceNow (NOW), Adobe (ADBE), and Intuit (INTU), which cater to large corporations, and growth-oriented companies like Palantir (PLTR), Nutanix (NTNX), and Datadog (DDOG) that focus on empowering small businesses.

Opportunities in Aerospace and Defense

The aerospace and defense sector presents compelling opportunities, with many defense companies trading below their 52-week highs. Investing in the Defense and Aerospace ETF (ITA) can provide exposure to a diversified portfolio of these companies. Additionally, Boeing (BA), despite recent challenges, remains an attractive long-term investment due to its defense contracting business. Another consideration is General Electric (GE), which is set to spin off its power generation business in 2024 and offers exposure to the green energy market. L3Harris (LHX), with its recent acquisition of Aerojet Rocketdyne, and AeroVironment (AVAV), a leader in drones and military robotics, are two lesser-known defense names worth exploring.

Stay Focused and Take Advantage of Opportunities

While the events of recent weeks may be disheartening, it’s important not to let emotions drive your investment decisions. Stock markets often climb a wall of worry, and periods of uncertainty can provide excellent buying opportunities. Evaluate stock charts, identify support levels, and use volatility to your advantage. Look for companies reporting earnings this week that might be undervalued and take a calculated approach to boost your returns. Good luck!