Some of the key drivers that drove stocks to record highs in the first three months of the year are being undermined, leading to Tuesday’s sell-off, according to investor James Abate. The S & P 500 dropped nearly 1% while, the Dow Jones Industrial Average shed more than 400 points — on pace for its biggest one-day drop in nearly two months. The Nasdaq Composite was also under pressure, losing 1%. “Stocks are priced for perfection and for them to move higher or avoid a correction you needed rates to either go down and/or profits to move higher. And both of those pillars have been kicked out from underneath them the past few days,” Abate, founder and CIO at Centre Asset Management, told CNBC. Recent economic data such as Monday’s ISM manufacturing index release point to persistent inflation. This — combined with other higher inflationary indicators such as oil scaling to a five-month high — raised questions over whether the Federal Reserve will cut interest rates starting in June, as is forecast. .DJI 1D mountain Dow sells off Investors have also had to check their expectations of profits moving higher as 2023’s fourth-quarter gross domestic product level received a downward revision . Corporations such as Tesla have also indicated negative retail trends. The stock sank 5% on Tuesday after the electric vehicle manufacturer posted a large miss on its first-quarter deliveries . Shares of PVH , meanwhile, plummeted 23% after the clothing conglomerate issued a disappointing sales outlook. Outside of macro and micro data, the stock market’s woes have been exacerbated by rising geopolitical tensions, Abate added. On Monday, a missile attack on Iran’s embassy in Syria left seven dead and contributed to the rise in oil prices. The underperformance in the Russell 2000 small-cap index means that this market selloff isn’t solely contained to high-flying tech stocks. Abate warned the pullback might lead into a more severe downturn going forward. The Cboe Volatility Index (VIX) , Wall Street’s preferred fear gauge, jumped above 15 for the first time since mid-March. It was last at 14.84. This suggests “stress may be starting to enter the market here in a way that leads to more than just a mild correction,” he said. Abate manages the Centre American Select Equity Fund, which has returned 8.9% year to date compared to its category average of 9.7%, according to Morningstar . Some of Abate’s top fund holdings include Apple , Microsoft , Amazon , Nvidia and Medtronic .
Tuesday’s market sell-off is what happens when stocks are ‘priced for perfection,’ says investor James Abate
Apr 2, 2024
