- Lance Roberts said it’s hard to be bullish or bearish on stocks right now.
- But he told Insider what he would be watching to spot a bottom coming in.
- He also shared what he’s most bullish on in the stock and bond markets right now.
Lance Roberts isn’t going to pretend he knows where the stock market is heading in the coming months.
“You really have a mixed bag of events. I could make a very bearish argument to you and say, ‘Look at these indicators, and all of this is telling you that we’re about to have a major
‘ Roberts, the CIO of RIA Advisors, told Insider on Thursday.
Roberts, who has worked in financial markets since 1996, said he was 50/50 bearish and bullish on stocks as they attempt to rebound from a rocky start to 2022. The S&P 500 is down around 10.7% year-to-date, and the tech-heavy Nasdaq Composite is down nearly 19%
But he said there were three indicators that show the market could be set for another rally over the next two months after enduring another sell-off in April.
The first is the price level of the S&P 500 and the level of technical support it finds in the 4,200-4,300 range, which the index approached in September and October last year, and in March and April of this year. If the S&P 500 drops significantly below this range, it could spell trouble.
“If we break these lows with any kind of conviction, we’re probably talking about another 10% downside on the S&P 500 quite easily,” Roberts said.
But for the moment, the index has not fallen significantly below this range.
The other two indicators, Roberts said, met the criteria to call a bottom.
The first is that investor sentiment is “super negative”. According to the AAII’s weekly investor sentiment survey, the outlook for investors is at its worst since 2009.
The other is the positioning of institutional investors in equities, which remains relatively weak. In March, global fund managers held their highest levels of cash since April 2020, according to a monthly Bank of America survey.
Given that both of these lower benchmarks are present and stocks aren’t far off recent lows, Roberts said he wouldn’t be surprised to see another short-term rally over the next two months.
“That’s what we’re looking for right now, it’s a short-term marketable rally,” he said. “We had basically four months of negative returns – that’s very unusual for a market.”
If that happens and bullish sentiment returns, Roberts warned of another potential selloff to follow.
Opportunities to watch
Roberts is the most bullish on bonds right now due to how much they have sold in recent months in anticipation of the tightening.
. Yields on 10-year Treasury bills, for example, have risen from around 1.5% in early January to 2.8% today.
He said he believed investors would return to the assets as they seek a safe haven investment amid an economic downturn.
Roberts recommended investors buy treasury bills instead of corporate bonds because they are less risky. He underlined the iShares 20 Plus Year Treasury Bond ETF (TLT) and the iShares 7-10 Year Treasury Bond ETF (IEF) as easy ways to gain exposure to assets.
“If we go into a major bear market, bonds will perform better. It’s a flight-to-safety issue,” he said. “And because their price is so depressed, you’ll probably get a better return,” he continued, adding that he thinks stocks will likely outperform stocks over the next 12 to 24 months.
On the stock market, Roberts said he was cautiously becoming more bullish on the tech sector — with a longer-term outlook — given how many names in the space have corrected or fallen by at least 10. %, recently. He recommended waiting for companies in the sector to publish their first quarter results to ensure that they are on solid ground (see:
Assuming they are, Roberts listed seven names as examples of companies he believes offer attractive long-term investment prospects given their steady revenue growth: Meta Platforms (FB), Apple (AAPL), Microsoft (MSFT), Cisco (CSCO), Amazon (AMZN), Advanced Micro Devices (AMD), and Nvidia (NVDA).
In addition to depressed prices in the tech sector, Roberts said companies offer the best chance of strong earnings in an environment of low growth and high inflation.
“If we go into a deflationary environment, it’s the companies that can increase their earnings,” Roberts said.
More generally, he said he likes value stocks and dividend stocks.
Roberts also recommended holding a higher percentage of cash than usual so you can buy assets when the time is right.