Look to market weakness opportunistically, not as the start of a big problem: Chris Verrone
Speakers
Chris Verrone
— Head of Macro, Piper Sandler
Summary
Chris Verrone, Baird Strategas partner and chief market strategist, argues that recent equity-market weakness should be bought rather than treated as the start of a major problem because credit conditions remain benign. He expects a modest S&P 500 drawdown, perhaps to around 7250, to form a seasonal low into early next year. He highlights healthcare and energy as leadership areas, sees oversold industrials and AI power names as needing to respond, and flags consumer discretionary as a possible bottoming group if the Fed hikes.
- Verrone says price action is key and credit conditions are not yet signaling broad stress.
- He views equity weakness opportunistically, with S&P 500 worst-case drawdown near 7250.
- Healthcare and energy are cited as rotational leadership winners.
- Oversold industrials and AI build-out power names need to respond to confirm leadership.
- Consumer discretionary is a potential washout and bottoming area if the Fed tackles inflation.
- Rising yields and oil are noted, but he is not treating 5% 10-year yields as prohibitive.
- Key risks to his view include credit deterioration or industrials failing to regain leadership.
Ideas
Buy equity weakness; credit remains benign
The S&P 500 is only about 3% off its highs despite higher oil, higher rates, and the AI slowdown, and he sees a worst-case drawdown to around 7250 that would likely mark a seasonal low into early next year; as the calendar improves, he expects a good response, not a bad one.
Buy oversold industrial, AI power names
Deep cyclical industrial and AI build-out power names such as Quanta, Caterpillar, and Emerson are down 20-30% over the last six to eight weeks, so much of the weakness may already be discounted; he would look to weakness in these oversold industrials and says they need to respond over the next 6-12 weeks to confirm the leadership story remains intact.
Healthcare leadership remains exceptional
Healthcare has been an exceptional rotational leader over the last four to five months, taking the baton of leadership and running with it.
Consumer discretionary may be bottoming
Consumer discretionary is Exhibit A of washout conditions in consumer-related shares; if the Fed hikes and the market interprets that as finally tackling inflation, the beaten-down consumer discretionary group can find some footing.
Energy stocks remain potent leadership
Energy stocks are leadership; about 85% of energy names remain in uptrends, which he calls a potent part of the market's leadership story and a call he would make if translating the view into a recommendation.
