David Donabedian, chief investment officer at CIBC Private Wealth, expects several small corrections, and at least one of 10%.
Stocks may be in the midst of a four-day rally, but David Donabedian, chief investment officer at CIBC Private Wealth U.S., isn’t getting overly excited.
Donabedian said that he expects single-digit returns for the year as a whole, with three or four small corrections followed by a bigger one, in his comments to MarketWatch.
“We enter 2022 with relatively high valuations, a 7% inflation rate in the U.S. and the three greatest catalysts for the great bull markets coming out from March 2020, through 2021,” he said. The catalysts are loose monetary and fiscal policy and a surge in earnings. And all three will dissipate this year, he said.
As a result, “we’re going to have to get very used to at least 5% pullbacks in the market,” Donabedian said. “And at some point in the year, we’re probably going to get a full-blown correction because that’s just how markets work.”
At least one decline of 10% is likely for the S&P 500, he said. Donabedian favors cyclical stocks with valuations depressed by their recent declines. He also likes small-cap stocks.
“Small-caps have extraordinarily low valuations relative to large-caps,” he said.
Meanwhile, J.P. Morgan strategists led by Marko Kolanovic said Monday that the recent drop by stocks went too far, given economic fundamentals, presenting investors with a good buying opportunity,
“The equity market sell-off is overdone in our view, and we reiterate our call to buy the dip, particularly in cyclicals and small-caps,” strategists wrote in a commentary.
