Wild gyrations on the market are keeping investors on edge and you are not alone if you feel lost about whether to buy the current market correction with the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) down 13% from its April peak.
The key to the market's next move hinges on whether Australia sinks into a recession. If we manage to avoid one, Deutsche Bank believes the market will jump 10% over the next 6 to 12 months.
The investment bank studied the last 13 times when the market fell around 15% over a six-month period in the past 55 years and found that the market had on average traded flat in the period following the correction.
"If we excluded corrections that led into a recession, we get quite a different picture," reports Deutsche. "On average, the market has risen ~10% over the ensuing 6-12 months."
What is perhaps more significant is that the index has never traded lower in the six months post-correction, and had only on one occasion slipped lower than the low hit during the correction at the 12-month mark.
Some economists argue that parts of our economy are already in a recession and commodities dependent Canada will find out later this week if the country has officially slipped into a recession when its second-quarter gross domestic product number is released.
However, no one (yet) is suggesting that Australia will follow suit and that is certainly the view of Deutsche, which brings us to the next question: what stocks should you buy to best leverage off the market bounce?
The investment bank has a view on that too and says domestic cyclicals are one of the places to be. It's touting electrical and furniture retailer Harvey Norman Holdings Limited (ASX: HVN), building supplies company Boral Limited (ASX: BLD), travel agent Flight Centre Travel Group Ltd (ASX: FLT), casino operator Echo Entertainment Group Ltd (ASX: EGP), New Zealand focused building materials company Fletcher Building Limited (Australia) (ASX: FBU), property investment group Stockland Corporation Ltd (ASX: SGP) and online real estate classifieds company REA Group Limited (ASX: REA).
Stocks that are creating value from their cost cutting programs are also worth a look. These include global insurer QBE Insurance Group Ltd (ASX: QBE) and wealth manager AMP Limited (ASX: AMP), according to Deutsche.
Followers of the Motley Fool will also know that we love quality high-yielding dividend stocks and I think these stocks will outperform in the market bounce. National Australia Bank Ltd. (ASX: NAB) is one example I think may do well.
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