How to navigate a trade-obsessed market

The dog days are here.

August has lived up to its reputation of being a historically volatile month, with the major averages enduring several-hundred-point swings week in and week out as U.S.-China trade tensions escalated and recession risks rose.

What’s the best way for investors to play the violent swings?

If you ask Steve Grasso, managing director of institutional trading at Stuart Frankel, buyers might want to take a page from NASCAR’s book.

“The rule of thumb with NASCAR, if you hear any driver talk about it, has been [that] you go straight towards the smoke, you go straight towards the accident. And that’s what you have to invest in, unfortunately, in this market,” he said Monday on CNBC’s “ETF Edge.” “You have to invest through the storm.”

In other words, rather than trying to trade around every tariff-related tweet from President Donald Trump, investors should endure the 5-10% swings brought about by the uncertainty and enjoy the rallies that often follow, Grasso said.

“We are getting to that point where we’re building up a layer of callus to all these tweets,” he said.

But we’re not quite there yet, says Andrew McOrmond, managing director of ETF trading solutions at WallachBeth Capital.

“The Trump thing is brand new to all of us. There’s no back-testing these tweets. But August is back-testable,” he said in the same “ETF Edge” interview, pointing to August’s historically low trading volumes.

“The tweets are something we haven’t seen before, so, these moves, in my mind, are exaggerated by anywhere between 100 and 300 [basis point]s a day [on] the days that they happen,” McOrmond said. “Like Steve said, investors: Stay straight through it.”

McOrmond recommended the Invesco S&P 500 Low Volatility ETF, ticker SPLV, as a way to stay the course through the turmoil. The fund counts lower-volatility names including Waste Management and Duke Energy among its top holdings and is up over 20% this year, including a more than 1% gain on Monday.

“The down days aren’t nearly as bad,” McOrmond said of SPLV’s track record. “Stay invested, stay the course. You can buy on dips. What I wouldn’t do is sell on dips into fear.”

Digging deeper into the safety plays — many of which are having a banner year, including real estate investment trust and utility stocks — both panelists saw more room to run.

“The environment that created the buying of REITs and utilities and staples is not going away,” Grasso said, noting that overbought assets like those tend to stay overbought for some time.

Figuring that the U.S.-China trade war was “not over yet,” and considering the Federal Reserve’s position on keeping interest rates low for now, McOrmond liked one of those sectors best.

“What I like about the real estate is that we’re in a historically low rate environment,” he said. “I think it’s safe to say rates aren’t going to up. But whether they stay the same or go down, that’s going to help housing and help mortgage applications. I think that kind of churns on and can see through some of this volatility regardless, especially in a U.S.-based market, which is outperforming the world right now, for the most part.”

Stocks traded higher on Tuesday as investors kept a close eye on the U.S.-China trade war.

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