Goldman Sachs Sees Correction Risks Rising. Here’s How to Prepare for a Storm

Goldman Sachs (NYSE:GS) thinks risks of a market correction are increasing. Depending on who you ask, the markets have already corrected. It certainly feels that way with the S&P 500 down just shy of 7% from its high. The Nasdaq is already in a formal correction, off 10% from its peak. For the S&P, another 3% will do it officially, but I certainly wouldn’t panic as much of the band-aid may have already been ripped off to consider scrambling, or worse, panic selling stocks that have already served most of their time in the penalty box. 

With the S&P about 70% of the way to a correction, I certainly would say the odds of a correction have risen. Of course, if you’ve ridden the 7% drop, another 3% or so might not be all too awful. Either way, timing a correction or waiting for that first sharp rally off the local lows might come with its own share of risks. It’s times like these, when the bounces tend to catch market-timers off-guard. And suddenly those who look silly for buying suddenly turn into overnight geniuses.

I have no idea if 6,300 is the ground floor for the S&P or if it lies somewhere in the 5,000s. Could bear market risks also be rising as the conflict in the Middle East gets out of control?

Correction risks are certainly rising by the day, but there’s no reason to panic

Let’s just say it wouldn’t be out of the ordinary. For investors who fear we’re still in the earlier innings of this sell-off, the more cautious outlook by Goldman might be a sign that it’s time to rotate a bit before a bear-case scenario has the potential to happen.

If there’s a storm and you’re getting worried, it can be difficult to hold a stock, let alone buy more on the way down. If dip-buying is met with instant pain, perhaps giving a closer look to the dividend payers with lower betas could be the move.

Of course, even the names that were working earlier this year (the stable dividend plays) are starting to roll over. And until there’s clarity on what’s to happen with the Iran war, it might be worth considering adding to both oversold risk-on stocks as well as the more recently-hit risk-off plays.

On the surface, Goldman’s latest warning is a red flag, but their Chief Equity Strategist, Peter Oppenheimer, seems to view such a correction as a buying opportunity more than anything else.

So, while the word “correction” is scary (the CNN Fear and Greed Index suggests such), many tend to be good times to go bargain-hunting.

ETF opportunities on my radar amid the market correction

I don’t think you need to look very far for opportunities. The Schwab U.S. Dividend Equity ETF (NYSEARCA:SCHD) is coming in, now down nearly 5% from its high, giving investors another shot to score a yield above 3.3%. In my opinion, such stable dividend payers within ETFs like the Schwab U.S. Dividend Equity ETF are very opportunistic buys for those who want to ease into this market correction.

The 0.65 beta could mean less downside risk than the S&P. Of course, even low-beta dividend payers are no safe haven. For those who welcome volatility, it might be worth going with the Nasdaq 100 over the S&P 500. Though, both seem like interesting bets at a time like this. Of course, for those feeling tactical, it might be worth buying what’s been working more recently.

In my view, sector ETFs such as the State Street Energy Select SPDR ETF (NYSEARCA:XLE) stand out. The State Street Utilities Sector SPDR ETF (NYSEARCA:XLU) may also present an opportunity after shedding 4% last Friday. Much of the year’s gains have been wiped out in the utility ETF, but that might offer a nice discount for investors who’ve yet to rotate and don’t think it’s too late to do so, as a correction finally comes to fruition.