August has historically been the worst month for stocks since the 1987 crash and that has some investors wondering what to do during this summer lull, especially with the recent market volatility.
If you are a short-term investor, don’t be a “hero” by investing in this market at the moment, said JPMorgan Funds global market strategist Andres Garcia-Amaya. However, he does see some opportunities for long-term investors.
Specifically, he has his eye on Europe, which he said has underperformed the U.S. equity market.
“Their economies are not in good shape, but they`re going from really bad to just bad, and that type of momentum is what you look for to try to generate some outside returns in the years to come,” Garcia-Amaya said.
However, he cautions that European equities are more volatile than those here in the U.S., so if and how much you want to invest depends on what your risk aversion is.
“There is more uncertainty, not only about their economy but about their earnings,” he noted. “That’s one of the reasons that I think there will be a higher expected return.”
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So how does one invest in Europe? Very carefully, Garcia-Amaya said.
“I think you have to be very selective in Europe,” he said. “For instance, we might like German autos but we don`t like German banks right now. So, within those sectors, you might want a specific stock over another. “
Most important, he added, is to make sure you have professional help.
“It is very volatile and you better have some handholding along the way to make sure you pick the right company,” he said.
However, even if you stick to U.S. stocks, Garcia-Amaya isn’t concerned about the recent volatility.
“I wouldn`t read too much into the daily volatility of the market because volume is very low,” he said. “Come September, I think everyone will come back to play and that`s really going to dictate where the rest of the year goes for equities.”
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In the end, he still believes equities offer more value than fixed income, no matter if it is August or September.
“That`s still our thesis and that this is a thesis, we think is going to go on for years, not just months,” he said.