S&P 500 dips on fears of new UK Covid strain — five market analysts weigh in on how to approach the pullback

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Stocks were slightly lower Monday as concerns over a new Covid-19 strain in the United Kingdom countered hope for Congress passing a coronavirus stimulus deal.

Five experts explain how investors should approach the pullback.

Jim Cramer, host of CNBC’s “Mad Money,” discussed how Tesla’s inclusion in the S&P 500 could have an outsized impact on direction.  

Tesla‘s now a big part of the S&P. If Tesla goes down a lot, the S&P can actually be moved by that. So, let’s not forget if Tesla turns around, I think, again, the S&P could get a little ‘oomph’. I am not willing to give up on this market because of a 70% number in the U.K. where the U.K. has been particularly let’s just say absent in terms of the way it’s handled this [Covid crisis] so we can all take every single cue we want from the U.K. or we can take our cue from some of the companies that are going to be doing quite well here.”

Liz Young, director of market strategy at BNY Mellon Investment Management, sees the pullbacks as opportunities.

“I don’t know that this is the year where we really should look at a Santa Claus rally as the only thing to take us through the end of the year. Now we have to look at this in two different timeframes – the next 60 days are probably going to be a little bit tough so does that mean we don’t have a big Santa Claus rally? Perhaps, but seasonally Santa Claus rallies are usually pretty strong and difficult to trade out of. If we look into 2021, now, one of the ways to look at this kind of glass half-full about the U.K. is that all it does is create more pent-up demand that can be unleashed towards the end of the first quarter, beginning of the second quarter as long as this vaccine is still effective. So I would look at these mini pullbacks as buying opportunities.”

Joe Terranova, senior managing director at Virtus Investment Partners, sees signs investors still have an appetite for risk assets.

“I think everyone’s focusing on ‘well, what is going to happen here for the next 10 days?’ And I think the important thing is to focus on what’s going to happen here over the coming quarter, what type of opportunity is going to be provided? And I think, overall, you have to look at any dips in the market … as an opportunity if there is a correction, in fact. And I think [Monday], it gives evidence to that. You have a tape today that is trying to understand this new variant of the virus. It’s also trying to digest, a significant S&P 500 rebalance but yet, there is no flight to safety today. The 10-year Treasury, that’s actually selling off. We came in earlier this morning, it was 88 basis points, now up to about 93 basis points.”

Kourtney Gibson, president of Loop Capital, said to expect minor dips on the path to more gains.

“I think this is just a minor blip, if you will, and we talked about this. We didn’t say that you’re going to see straight up into the end, a straight melt-up. You’re going to see some dips, but as I’ve said before and I’ll say again … this is a buying opportunity. On our desk at Loop Capital [Monday], we are seeing institutional investors kicking up, though I’m sure they’d rather be sipping their eggnog for the rest of the afternoon today. When you’ve seen pullbacks in some of these names that you have high conviction in, and for the long term you think are going to do well, you’re going to pick up on those dips.”

Steve Weiss, managing partner at Short Hills Capital Partners, sees a rational market at play.

“There is too much baked in already. We’ve seen stocks move up too aggressively. I think it’s the kind of market where you’ve seen money constantly go in and that [you should] buy because you’re hoping for an early January effect as we’ve seen the last few years. … So, in my view, sure we could be bumpy
… We’re seeing a little bit of a rationalization of the reopen trades that didn’t stand a chance of being sustainable – the cruise lines, the airlines, the hotels –and you’re seeing smarter stock picking I think in this market. Not entirely, there’s still excesses, but overall it’s a more rational market.”

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