The Dow Jones industrial average and the Nasdaq also slumped, reversing gains from earlier in the week.
"We view the latest sell-off as a bout of profit-taking after a strong run," said Mark Haefele, the chief investment officer of global wealth management at UBS, in a Friday note. "Stocks are still well-supported by a combination of Fed liquidity, attractive equity risk premiums, and an ongoing recovery as economies reopen from the lockdowns."
While the S&P 500 is now sitting roughly at UBS's target, there's also further upside that could be driven by a coronavirus vaccine or "positive medical developments," a new stimulus bill from the government with an election outcome favorable to growth, and a real rates dropping further, according to the note. Investors should thus stay invested according to previous plans, according to Haefele. Here are three recommendations he has for investors.
He also recommended a "put-writing approach to enter markets defensively, for those investors who can implement options," and "making use of structured investments to add asymmetric exposure to stocks, e.g., with a degree of capital protection."US Investing Championship hopeful Matthew Caruso landed a 382% return in the first half of 2020. He shares the unique twist he's putting on a classic trading strategy — and 3 stocks he's holding right now.
That being said, Haefele added that investors will need to seek alternatives to portfolio diversification because of how low starting yields are on high-quality bonds. He recommended gold, which he sees as having further upside potential, and "including some exposure to hedge funds with a strong track record of downside risk management," to insulate portfolios.
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