After the turbulence in the US stock market, what are the "buying opportunities"?

The market started off turbulent in August, with the overall US stock market being hit by economic tension, mediocre corporate earnings, and the unwinding of global yen carry trades, prompting Wall Street to seek out market corners that may be unfairly punished.

Despite recovering almost all lost ground from the 3% decline that started last week, the S&P 500 index remains about 6% below its historical high after four consecutive weeks of decline.

Due to concerns about the macroeconomic and geopolitical backdrop, market volatility is expected to persist. Analysts encourage investors to establish defensive positions and take advantage of buying opportunities in market sectors that are still heavily affected. Rob Conzo, CEO and Managing Director of Wealth Alliance LLC, said, "I think that when the market falls, it's never a bad idea to rebalance your portfolio a bit and take advantage of some of the downturns."

Of course, trading in an unstable market carries risks—stocks may fall again leading to future discounts, or rise rapidly taking away opportunities. Quincy Krosby, Chief Global Strategist at LPL Financial LLC, stated that trading around volatility may not make sense for long-term investors. She said, "If you have a long-term growth portfolio, you can stick with it and weather the volatility."

Here are where market observers see opportunities in the stock market:

Semiconductors

Citigroup analysts say that semiconductors look attractive now after suffering heavy losses in recent weeks. The industry benchmark index is under pressure due to macroeconomic pressures, high yield expectations, and downside risks in the automotive terminal market. The Philadelphia Semiconductor Index has fallen by about 20% from its peak in July.

Citigroup analysts led by Christopher Danely wrote in a report on Thursday, "We remain bullish on this sector as the primary reasons we like—artificial intelligence and memory strength—remain unchanged."

Micron Technology (MU.US) is Citigroup's top pick. Other companies in this sector that have received Citigroup's buy ratings include AMD (AMD.US), Broadcom (AVGO.US), Analog Devices (ADI.US), Microchip Technology (MCHP.US), NVIDIA (NVDA.US), and KLA Corporation (KLAC.US) Healthcare Sector

Healthcare stocks are typically seen as defensive stocks, so when other sectors in the market are overbought, investors tend to shift to this sector. Last month, the S&P 500 Health Care Index rose by about 3%, outperforming the overall market which fell by over 4%. David Harden, Chief Investment Officer at Summit Global Investments, commented on investing in healthcare stocks, saying, "I don't think this is over yet."

Harden also sees upside potential in the weight loss drug industry. Eli Lilly and Company (LLY.US) is an example, with its stock price plummeting during a sell-off. The company reported better-than-expected earnings on Thursday and raised its 2024 revenue forecast for its obesity drugs, leading to a surge in its stock price. Harden, who holds Eli Lilly stock, said, "The rally is not over yet, there is a clear track, and a lot of energy has been suppressed."

Furthermore, investment bank Oppenheimer listed some standout industry recommendations in its OPCO Trifecta list, one of which is to buy healthcare growth stocks in the Russell 1000 Index. More broadly, Oppenheimer believes that the recent weakness in the S&P 500 Index is "a correction within an uptrend," as it does not believe the stock market cycle will end as abruptly as it did in July trading.

Oppenheimer's Technical Analysis Director, Ari Wald, stated, "While the breakdown in rates and leadership suggests the stock market cycle is maturing, our work suggests a year-end rebound should materialize following seasonal setbacks. We will be watching the quality of this rebound to gauge our outlook for 2025."

Oppenheimer notes that healthcare growth stocks in the Russell 1000 Index exhibit bullish trend characteristics and recommends buying during this pullback. Stocks on Oppenheimer's OPCO Trifecta list are essentially rated as "outperforming the market," with their trend work showing positivity and being supported by favorable factors from top to bottom. In the technical analysis report, four healthcare stocks are recommended, including HCA Healthcare (HCA.US), Merit Medical Systems (MMSI.US), Neurocrine Biosciences (NBIX.US), and Viking Therapeutics (VKTX.US) Large-cap Tech Stocks

In recent weeks, the technology sector and the so-called "fabulous seven big tech stocks" have been hit hard. The Bloomberg index tracking this group has dropped by about 15% from its peak in July. The sharp decline in stock prices has also suppressed the group's price-to-earnings ratio, with some investors feeling that the group's stock prices were previously too high. The group currently has an expected P/E ratio of around 28 times, lower than the 5-year average of 30 times.

Rhys Williams, Chief Strategist at Wayve Capital Management LLC, said: "If you have been reducing holdings, now is a good opportunity to start increasing them."

Interest Rate Sensitive Stocks

Concerns about the macroeconomic environment often make interest rate-sensitive stocks such as utilities, real estate investment trusts, and dividend-paying stocks more attractive to investors.

Currently, the yield of the S&P 500 Utilities Index is slightly above 3%. So far this year, the index has risen by about 16%, outperforming the broader market. Oppenheimer also recommended four utility stocks in its report, including Pentair (PNR.US), Republic Services (RSG.US), Waste Connections (WCN.US), XPO (XPO.US).

Next, the real estate sector may be the next one to watch. Joe Quinlan, Chief Market Strategist at Bank of America Private Bank, said: "As time goes on and we enter 2025, real estate may be a surprising horse, as the Fed is hinting at rate cuts and mortgage rates have come down."

Furthermore, in turbulent markets, holding (or buying) dividend-paying stocks to help balance volatile trades also makes sense. Quinlan said: "High-yielding dividends provide balance to the stock portion of your investment portfolio. In uncertain economic times, if you can get stable income from the dividend crowd, you can sleep better at night."