Steve Cress, head of quant at Seeking Alpha, has a straightforward message for investors rattled by the recent bout of market volatility without a debt bubble: don’t panic. In a podcast conversation with Rena Sherbill, Cress argued that the current correction lacks the systemic leverage that fueled past crashes, making it a potential opportunity rather than a reason to flee.
Why This Selloff Differs from Past Crises
Cress, who has been through market downturns since 1987, noted that most severe pullbacks historically trace back to a debt bubble—the mortgage security crisis of 1987, the dot-com leverage frenzy, and the mortgage-backed lending excesses of 2007–2008. This time, he said, no such bubble exists. Corporate earnings and revenues have been stellar for most companies, and even those that missed estimates did so only slightly. Yet stocks are being hammered indiscriminately, a sign of anxiety and negative sentiment rather than fundamental deterioration.
“Do not panic,” Cress advised, adding that he would rather put cash to work while high-quality companies are being sold off. He pointed to strong balance sheets across the S&P 500 as further evidence that this pullback is likely short-term in nature.
Post-Midterm Election History Favors Buyers
Cress also highlighted historical data around midterm elections. Since 1928, the market has typically risen three, six, and 12 months after midterms. Looking at the 19 midterm elections since 1950, the market was up in all 19 instances, with an average gain of about 15.1%. Even in years with early dips—1974, 1994, 2002, and 2018—stocks recovered strongly by the six- to 12-month mark. For Cress, that record supports buying into post-election volatility rather than sitting on the sidelines.
Equal-Weighted ETFs as a Volatility Play
When asked about the Invesco S&P 500 Equal Weight ETF (RSP), Cress said he likes it for the same reason other analysts do: diversification. Market-cap-weighted funds like SPY are heavily concentrated, with the top 10 holdings accounting for roughly 40% of the S&P 500’s market cap. That concentration can amplify losses when technology leads a correction. RSP, by contrast, invests equally across all constituents, which Cress said helps minimize risk and maximize returns. He noted that RSP has been outperforming SPY during this tech-led selloff.
Cress also pointed to structural changes in the market that can intensify sharp pullbacks: more leveraged ETFs and higher margin levels among retail investors. When systematic models deleverage or margin calls hit, selling can compress into a brief period—creating opportunities for those willing to step in.
Allstate: A Quant Strong Buy in a Tough Tape
As an example of a stock that has weathered the storm, Cress cited Allstate (ALL), which reported earnings on Wednesday and is a Quant Strong Buy. The insurer is up 38% over the past year and about 29% year to date, beating both the S&P 500 and the financial sector. Cress attributed the strength to valuation, growth, and profitability. As a property and casualty insurer, Allstate benefits when interest rates rise because it can invest its portfolio at higher yields while charging customers the same premiums. The 10-year Treasury yield moved from 4.7% to 5.2%, a rapid shift that hurts many financial institutions but works in Allstate’s favor.
Allstate is also a holding in the Quant Growth & Income (QG&I) portfolio, which Cress said has returned 12.31% since its June launch, versus 3.9% for its benchmark. The portfolio focuses on dividend-paying stocks and is deliberately light on technology—only two of its 30 holdings are in the tech sector—with exposure across financials, real estate, energy, industrials, and healthcare.
Semiconductor Earnings and AI Demand
Looking ahead, Cress said he is watching semiconductor companies, many of which have posted strong earnings but seen share prices fall anyway. Micron Technology (MU) reports in December, and Nvidia (NVDA) and SanDisk (SNDK) have already delivered solid numbers. Cress believes it may take another quarter or two of consistent results before investors regain confidence. Longer term, he sees persistent demand for chips—not only for data centers but also for automobiles, which can contain 2,000 to 4,000 chips each, and for the growing array of connected devices.
On the political front, Cress downplayed fears that midterm election results could derail data center construction. While 40 of 41 local referendums on data centers went against them, he noted that about 560 data centers are currently being built and roughly 1,100 more are planned for next year. Most contracts were negotiated over the past two years, and towns typically want the jobs that come with these facilities. Any impact would likely be limited to future projects and would require negotiation rather than outright cancellation. Historically, Cress added, markets have performed well under both parties.
The Bottom Line for Investors
For Cress, the absence of a broad debt bubble is the key takeaway. While some financing risk exists among hyperscalers and private equity, it is not systemic. That, combined with strong corporate earnings and robust balance sheets, makes him inclined to treat this volatility as an opportunity—and to advise investors to keep calm rather than capitulate.
