With the Nasdaq heading for a 10% plunge, some analysts were telling clients not to panic and that they should use the market sell-off to go "bargain hunting".
The US tech-powered stock exchange fell over 3% on Thursday and another 2.4% on Friday, with futures pointing to another 4.5% dive on Monday as Japan's Nikkei crashed 12.4%, Taiwan's benchmark dropped 7.5%, and European benchmarks all fell over 2%.
Triggers for the crash are variously blamed on Japan's rate hike last week, the US jobs number on Friday adding to fears of a US recession, Middle East and other geopolitical tensions, a potential emperor's new clothes situation regarding artificial intelligence (AI), and Warren Buffett selling 50% of his stake in Apple.
While warning that "it can be a mistake to read too much into a single data release", said Min Lan Tan, head of the UBS chief investment office for Asia-Pacific, regarding the US jobs report, she noted it "will heighten concern that the Fed has kept rates too high for too long".
'Perfect storm' for hunting tech bargains
US equities are likely to remain volatile in the near term, said Tan, "but the pullback in recent weeks has improved their risk-reward, especially for tech stocks".
UBS is maintaining its positive view on the AI growth story, with Tan saying she and her team "think that the recent share price correction offers a good opportunity to add exposure to leading AI beneficiaries in the semiconductor, software, and internet space at more reasonable valuations".
Similarly, tech analyst Dan Ives at Wedbush in Los Angeles told clients it was "a perfect storm risk-off environment" heading into Monday's US opening bell.
"In a nutshell... This is not the time to panic on the tech trade, it's the time to go bargain hunting for our top tech names after this panic sell-off," he said.
Strategist Joachim Klement at Panmure Liberum in London said the sell-off was a "rude awakening" for investors who have been "sleepwalking in the face of a slowing US economy" as the US jobs report "triggered unexpected bowel movements with investors."
He said none of the US macroeconomic weakness seems priced into US earnings growth expectations, so "downgrades should be expected".
But while US stocks "may tread water for some time", Klement and his team see earnings growth in the UK and Europe as likely to accelerate and think investors "should buy into weakness in the UK and Europe and focus on UK domestic earners that benefit from policies implemented by the new Labour government".
'Don't panic'
Ives said that in his 24 years covering tech stocks on Wall Street, his "playbook" to guide investors through global sell-offs is "to own the best tech names" and "do not hide in times of panic".
"Ultimately, over the years these massive sell-offs have created the best long-term opportunities to own the likes of Microsoft, Apple, Nvidia, Salesforce, Oracle, Palo Alto, Tesla, Alphabet, Amazon, and other tech winners."
Likewise, UBS's Tan felt it would be similar to the last time when the S&P 500 fell 10%, though that was because of overheating concerns and the risk of more restrictive Fed policy, saying "we expect the growth concerns fueling the current sell-off will be unfounded".
Ives said inbound investor queries in recent days were asking if the tech bull market is over.
He acknowledged the worries that the US consumer is weakening, that the Fed is potentially moving too late to cut rates and that a "hard landing" for the economy is a possibility, but said his view is "this is just a white-knuckle moment in a multi-year bull run for tech stocks that need hand-holding".
The current earnings season, he said, has "validated our bull thesis and field checks around the massive cloud buildout" at Microsoft, Google, and Amazon "as the AI Revolution now hits its next gear of growth," with recent comments from Microsoft CEO Satya Nadella and AMD boss Lisa Su "gave more credence to the AI monetisation phase", with earnings from Apple, Nvidia, Microsoft, Alphabet, Amazon, ServiceNow, and AMD the true "barometers" that should be the guide to "see the forest through the trees despite this morning's carnage".
UBS's Tan also pointed to companies accounting for more than 75% of the S&P 500 market cap having reported, with results generally positive, and that guidance by US companies for the third quarter was also in line with normal seasonal patterns.
Against this backdrop, UBS advised investors to consider several strategies:
- Position for lower rates: the Swiss bank recommends investing in high-quality corporate and government bonds to capitalize on anticipated rate cuts, providing portfolio stability during economic transitions.
- Seize the AI opportunity: UBS advises leveraging recent corrections to invest in leading AI beneficiaries, particularly in semiconductors, software, and internet sectors, for long-term growth potential.
- Seek quality growth: Tan suggests focusing on companies with competitive advantages and structural drivers, ensuring consistent earnings growth and reinvestment to benefit from sustained market trends.
- Diversify with alternatives: UBS recommends alternative funds for diversification, noting that the likes of private equity and hedge funds "not only have the potential to help stabilize portfolios during times of stress but also take advantage of dislocations and generate attractive returns when other asset classes may struggle".