Where to invest $10,000 right now amid Iran war volatility: 9 market pros

Investing ideas: Financials, healthcare, consumer discretionary, and Magnificent Seven stocks (Nvidia, Amazon, Apple, Microsoft, Tesla, Meta, and Alphabet)

Andrew Pauker, a US equity strategist at Morgan Stanley, advised investors to split their money evenly across the four groups listed above.

He said this gives investors a multi-faceted attack. Financials and consumer discretionary offer exposure to economically sensitive stocks, which have sold off recently amid the Iran-war-driven growth scare.

Meanwhile, the traditionally defensive healthcare sector should act as a hedge if the economy worsens.

Finally, the Mag 7 stocks give investors exposure to quality growth stocks — plus, they’re relatively cheap after their recent decline.

Examples of funds that offer exposure to these trades include the State Street Financial Select Sector SPDR ETF (XLF), Vanguard Health Care ETF (VHT), iShares US Consumer Discretionary ETF (IYC), and Roundhill Magnificent Seven ETF (MAGS).

Investing ideas: Global infrastructure, large-cap value stocks, and high-quality/duration bonds

Stephanie Pierce, the deputy head of BNY Investments, said diversification right now is key, and shared three ways to achieve it.

One is to add exposure to the global infrastructure trade — things like data centers, water systems, and power grids. Firms in this area of the market have revenues that are linked to inflation, she said, so their revenues rise when prices do. Plus, the firms have stable cash flows and often provide robust dividends.

Second, Pierce said large-cap value stocks can act as a hedge against a potential rise in interest rates, which tend to weigh on the overall market. Within large-cap value, financials and insurance firms in particular would benefit in such a scenario, she said.

And third, she said investors should move up in quality and duration in the fixed-income space to minimize the potential damage from a spike in interest rates.

Some funds that offer exposure to these trades include the SPDR S&P Global Infrastructure ETF (GII), Schwab U.S. Large-Cap Value ETF (SCHV), and iShares 1-5 Year Investment Grade Corporate Bond ETF (IGSB).

Investing ideas: Keep money in a cash equivalent, such as short-term Treasurys or a money-market fund.

Stephen Dover, chief market strategist at Franklin Templeton, offered up a conservative approach to allocating $10,000. He said to keep money on the sidelines until a more pronounced pullback in stocks offers a better entry point.

Dover’s preferred indicator for timing a bottom is the CBOE Volatility Index, or VIX, which spikes when investors expect the S&P 500 to be volatile going forward. Significant spikes tend to happen when the market is most uncertain about the future, meaning things tend to clear up shortly after.

The index on Friday hovered around 20, but if it were to spike to 30—a level it briefly climbed above at the end of March before sinking back down—he would start dollar-cost averaging into the market, investing steadily over time. If the VIX were to hit 50, he’d go all in.

Of course, there’s no guarantee it reaches either of those levels, but Dover is confident enough that the sell-off isn’t over.

“I think it’s likely we’ll get a better opportunity to buy,” he said.

For investors looking for opportunities outside the broader market, Dover said he’s bullish on emerging markets at the moment, which he thinks are bound to “pop” if the US-Iran conflict is resolved.

Investing ideas: Magnificent Seven stocks, specifically the five most closely linked with AI

Marta Norton, chief investment strategist at Empower Investments, noted that the Magnificent Seven is trading in a historically cheap decile relative to the S&P 500.

“You’re essentially paying the same type of valuation for these names as you would be just to get a broad collection of the US stock market,” Norton said.

She’s most bullish on the five Mag 7 stocks that have the most exposure to AI: Nvidia, Amazon, Microsoft, Alphabet, and Meta.

Buying in at relatively cheap valuations lessens the risk investors take on from all of their AI infrastructure spending, Norton said. When a path to monetization for their AI products becomes more clear, the stocks should start to outperform, she added.

“If I were to fall asleep for 10 years, these are the names I would want to have in my portfolio,” Norton said.

Investing idea: Emerging market stocks

Dan Suzuki, senior investment strategist at Schroders, said EM stocks have been hit harder during the Iran war, since their economies are more heavily exposed to the restrictions on commodity flows through the Strait of Hormuz.

In Suzuki’s mind, this has created a discount worth buying, as geopolitical events tend to have no bearing on long-term performance.

Meanwhile, valuations — a major determinant of long-term returns — are historically cheap for EM stocks. Broadly, emerging-market stocks trade at around a much lower forward price-earnings ratio compared to the S&P 500.

“You’re getting something that trades at a very big discount, yet as you think about the longer term, there’s a lot of reasons to think returns could be higher.”

Funds like the Vanguard Emerging Markets Stock Index Fund ETF (VWO) and Avantis Emerging Markets Equity ETF (AVEM) offer exposure to EM stocks.

Investing ideas: US mid-cap stocks, industrials, EM stocks

Angelo Kourkafas, senior investment strategist at Edward Jones, said the market’s medium-sized companies are trading at low valuations — unlike large caps — and the group isn’t as sensitive to changes in the interest-rate outlook as small-caps, a factor that has hurt smaller firms recently.

The group is also more domestically oriented than multinational large-cap companies, meaning it can avoid some of the geopolitical risks facing firms that operate abroad, he added.

Kourkafas said he believed the short-term moves in markets were highly dependent on how the ceasefire with Iran holds up. But over the medium- to longer-term, he expects markets to return to the conditions from before the start of the war, with the Fed on track to cut interest rates and the industrial cycle gaining momentum.

He’d recommend that investors pair AI-related growth stocks with cyclical investments — particularly industrial stocks, one area he expects to benefit from the economy’s acceleration.

Investors could find good opportunities in international stocks, like emerging markets, he added, pointing to how that area outperformed the US market prior to the start of the war.

“Our advice is stay invested and diversified in the face of this geopolitical shock,” he said.

Investing ideas: Value stocks, small caps, short-duration and cash investments

Richard Bernstein recommended that investors direct their money toward assets that outperform during inflationary periods. His view is that the economy is headed for a period much like the 1960s, when inflation was beginning to heat up alongside concerns about the budget deficit.

Those headwinds could result in a “lost decade” for the market’s most popular investments, he said, speculating that large growth stocks and the S&P 500 could underperform for the foreseeable future.

His recommendations included value stocks and small caps, two areas poised to thrive amid inflation, and which outperformed the broader market in the 60s.

Short-duration and cash investments also outperformed during that period, since the market places a premium on cash that can be accessed in the present when inflation is high, he said.

The same logic applies to dividend stocks, which he also recommended as a part of investors’ portfolios.

“In the equity market, you want dividends because you want as much cashflow upfront as you can possibly get,” he said.

Several of those assets have already started to outperform the broader market. The Vanguard Value Index Fund ETF and Russell 2000 are both up 5% year-to-date, while the S&P 500 has remained relatively flat.

Investing ideas: Consumer discretionary and staples stocks

Jeff Weniger, head of equity strategy at WisdomTree, noted that investors have turned sour on the sectors because of rising oil prices. But he argued that the market is underpricing a positive scenario that results in a moderation of those prices.

“There’s just universal fear and trepidation with respect to consumer discretionary,” Weniger said. “That would be an area to think about over-weighting,” he added, saying that staples also look attractive.

The iShares US Consumer Discretionary ETF and Fidelity MSCI Consumer Staples Index ETF (FSTA) offer exposure to these trades.

Investing idea: Healthcare stocks as a contrarian play

Jeff deGraaf, founder of Renaissance Macro Research, noted that the State Street Health Care Select Sector SPDR ETF (XLV) has returned 26% over the past five years, while the S&P 500 is up more than 60%.

He said that’s resulted in an exodus from the space.

“Most people that I know that I know that were healthcare analysts or healthcare portfolio managers or hedge fund owners that focus on healthcare have retired or moved on to do something else,” he said. “I mean, that’s how bad it is, or has been.”

To deGraaf, that sets up the sector for a rebound. He highlighted drug companies Gilead, Amgen, and Pfizer.