5 Best Stocks To Buy For A Stock Market Correction

Wall Street should be rejoicing right now, with investors getting the much-wished-for corporate and income tax cuts. Moreover, the economy has been growing at a healthy annual pace of 3% for three straight quarters now. On the contrary, there is widespread panic in Wall Street, with all the major indices officially entering the correction territory that has extinguished the nearly nine-year bull run.

Rising treasury yields has diminished the appeal of stocks, especially with valuations hovering at historically high levels. Bond yields moved north on expectations of an interest rate hike, courtesy of a possible uptick in inflation on stronger wage growth.

Investors also pointed that stocks suffered a bloodbath from the unwinding of trades linked to bets on volatility staying low. Add to this the political worries emanating from issues related to a second government shutdown, and stocks are likely to continue their free fall.

Given the turbulence, investing in low beta defensive companies seems prudent. Such stocks provide risk-adjusted returns, consistent dividend and steady earnings regardless of the state of the equity market.

Bears Rip Stocks As the Market Enters Correction

Bears dominated the market on Feb 8, as it showed more signs of institutional selling. The broader S&P 500 slumped 100.66 points, or 3.8%, to 2,581, while the Dow Jones Industrial Average lost 1,032.89 points, or 4.2%, to close at 23,860.46, its second worst point decline in history. Both the indices are now officially into the correction territory, down more than 10% from the recent all-time high reached in January.

In fact, the equity market is witnessing its first genuine bout of gyration in years, with the Cboe Volatility Index (VIX), Wall Street’s so-called fear gauge registering its largest percentage jump in history. VIX rose 14.4% to close the day at 31.72. Any reading above the 20 mark indicates bearish outlook in the equity market, but a reading of greater than 30 shows a high level of investor fear.

Here’s What Usually Happens After a Correction

The equity market was on a confirmed uptrend until this week. Stocks were in such a free fall that on Feb 5, major indices undercut important support areas. All of them fell through their 50-day moving averages, including many leading stocks, Apple (NASDAQ:AAPL) Zacks Investment Research

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Written By: Zacks Investment Research