So let's say you've got a little cash that's burning a hole in your pocket right now. And let's say you've just happened to notice that stocks fell into a full-on correction last week and were down sharply on Monday. Should you be buying?
Bank of America quantitative strategist Savita Subramanian cautions that the market might be setting up a value trap -- where cheap stocks aren't really all that cheap and are unlikely to rebound. Prices fall and earnings are revised lower.
"Prices are falling faster than earnings expectations are deteriorating," she said in a note released on Friday. "Weak management guidance over the last several months suggests that we may be in the early innings of an earnings downgrade cycle, which is generally accompanied by defensive leadership and weak market performance."
She identifies technology stocks and financials as current value traps, which should be avoided of course. (Bank of America Corp. was down 13 per cent on Monday in midday trading.) On the other hand, she sees opportunities in economically defensive stocks, such as health care stocks and consumer staples.
David Berman