A market correction is definitely 'in the cards': Strategist

The S&P 500 (^GSPC) and Nasdaq Composite (^IXIC) are sinking on Wednesday while small caps (^RUT) are seeing a rebound of more than 10% in the last week. Wall Street Alliance Group Partner Aadil Zaman joins Wealth! to discuss the pullback and how investors should be positioning their portfolios.

"Investors need to be cautious here because the market has gone up so much in such a short period of time. So a correction, in our opinion, is definitely in the cards. And we feel that at this point in time, investors should have some firepower to be able to take advantage of a pullback," Zaman states. He encourages investors to take some profits from their positions in Big Tech stocks and "spread the love into other areas of the market that could potentially benefit from rate cuts."

As the Federal Reserve is likely to initiate an interest rate cut by the end of the year, Zaman notes that overall, "the stock market has a lot going for it." He points to low unemployment and low inflation as positive indicators of a strong economy, adding, "[The] Fed, whether now or whether later, they're going to cut rates. So we are firm believers that long-term, the market is going to go higher... And also, we feel that with the rate cuts that you mentioned, the breadth in the market is going to improve. So investors should start looking at allocating into other areas of the market, not just focused on 4 or 5 companies in a concentrated way."

He believes that investment banking activity will pick up as the Fed cuts interest rates, presenting a potential buying opportunity for investors. He also points to utilities as a sector with room to grow as the AI race increases the demand for energy. Zaman notes that investing in areas like financials and utilities would protect your portfolio in the event of a market correction.

For more expert insight and the latest market action, click here to watch this full episode of Wealth!

This post was written by Melanie Riehl

Video transcript

The S and P 500 NASDAQ are sinking this morning as big tech names like Invidia, usually a leader, fall.

Meanwhile, smaller stocks are seeing a rebound up over 10% in the last week.

Joining me now is a ZZ in Wall Street Alliance Group Adil.

Thank you so much for coming on the show today.

It looks like quite a different story for markets with a big pullback that we're seeing in mega tech stocks.

We're about to enter a volatile time with the election upcoming.

So how do you recommend investors should be positioning their portfolios?

I think you know, investors need to be cautious here because the market has gone up so much in such a short period of time.

So a correction, in our opinion is definitely on the cards, and we feel that at this point in time, investors should have some firepower to be able to take advantage of a pullback.

You know, we have been calling this for a long time.

You know, people need to book some profits in the big tech and spread the love into other areas of the market that could potentially benefit from rate cuts So you think your correction is coming?

One.

When do you think that correction could be seen in the market?

And how can investors protect themselves now ahead of that correction?

Well, I think that it's very difficult to time the correction, right, But there are few things that investors could do like if we are just talking about overall financial planning, you have some firepower in case there is a pull back.

Put it to work.

So, for example, if you have a moderate investment objective, you go 70% in equities, 30% in fixed income market falls, you go 8020 you increase your equity exposure.

This way, you could potentially get better risk adjusted returns.

There's been a lot of talk about if and when the Fed will cut interest rates.

It seems like we are going to get an interest rate cut at some point this year.

Do you think if we do that could potentially delay any type of correction?

Or do you think the stock market is just so hot right now that the correction is unavoidable?

At this point, I think the stock market has a lot going for it, right?

Unemployment is low, inflation is low, Economy is doing well, fed whether now or whether later they are going to cut rates.

So we are firm believers that long term, the market is going to go higher.

It's very difficult to precisely time exactly when that pull back is going to happen.

But as long as investors have firepower, they could use that as an opportunity.

And also we feel that with the rate cuts that you mentioned, the breadth in the market is going to improve.

So investors should start looking at allocating into other areas of the market, not just focused on four or five companies in a concentrated way.

So let's talk about those other areas of the market as we see this broadening out.

We know we have this rally in small caps.

Are there other areas that you think are undervalued at this point?

For sure, you know, like the bank earnings came out.

We liked what we saw right generally.

And although there is going to be net interest income compression, we feel that because of rate cuts, investment banking activity will pick up asset management fee goes up, trading fee goes up.

So we like that space.

We also feel we've been talking about this for a long time.

But we feel that because of artificial intelligence it consumes a huge amount of electricity and because of that, utilities could do well potentially, which was the worst performing sector last year.

But this year has started to pick up, so these are the type of areas that we would gravitate towards to create more diversification.

In the event of a correction, diversification would protect your portfolio.