There are growing signs that the credit markets are in serious meltdown mode and the cheap-debt-fueled buyback and buyout booms are all but over. Nonetheless, this week’s rout in global equity markets apparently means just one thing to those who’ve been blithely going along for the bullish ride: buying opportunity.
Consider the following:
“Fundamentals the Same Despite Stock Drop” (via Associated Press)
While it is too soon to tell how Wall Street might reconcile some of its concerns, investors would be well-served, observers say, not to panic and to remember that the markets bounced back after the Feb. 27 sell-off.
In fact, [A.G. Edwards chief market strategist Al] Goldman sees opportunity.
"The best time to buy stocks is when you're least comfortable buying stocks."
“Stocks Dive Again on Credit Woes” (via The Wall Street Journal)
Many money managers remain bullish. “We actually put out a ‘buy’ reiteration on the overall market, the thought being that this is largely a sentiment-driven swing,” said Charles Blood, director of financial markets and economic analysis with Brown Brothers Harriman. “It isn't to say there aren’t real things going on, but the market’s reaction seems exaggerated. Our prediction for the year is the same as it has been, 1600 on the S&P 500.”
“After the Fall, a Measure of Reason” (via BusinessWeek.com)
What you should not do is panic, says Jeffrey Kleintop, chief market strategist at Boston's LPL Financial Services via e-mail. His "Five Reasons Not to Panic" include "it's just another 5-7% pullback, the temporary unwinding of the yen carry trade is nearly over, profit worries are overblown, subprime losses are unlikely to cause a financial crisis, and no one will be left to sell." Keep in mind that "volatility is back," he says.
“Market Outlook: Analysts See Latest Selloff as Short-Term Event” (via CNBC.com)
"I think we're going to start to see the market coming back next week," Ned Riley, CEO of Riley Asset Management, told CNBC.com. "Once we get over the shock of the subprime issue, which is not as big an issue as the market is making it, people will realize there is value out there."
Many analysts are recommending investors use recent dips to consider large cap stocks in sectors with less exposure to the consumer and weak housing, such as healthcare, technology and energy….
Even in these volatile times, most analysts remain optimistic about the longer-term prospects for stocks. The latest CNBC Trillion Dollar Survey of analysts showed that none of them believe this is the beginning of a bear market and 46% of those surveyed view the selloff as a buying opportunity.
"This is very similar to me to what happened in February," said Michael Cuggino, portfolio manager at Permanent Portfolio Funds. "We still think the economy is going to continue to grow and stocks will continue to move higher."
“Market Not Hot, Investors Keep Their Cool” (via Dow Jones)
Craig Rappaport, a financial advisor at Janney Montgomery Scott in Radnor, Pa., said that nowadays investors "see downdrafts in the market as an opportunity to buy things rather than to panic out."
Indeed, many financial advisors reported that their clients were looking to buy into the market. Gene Foxworth, a Charleston, S.C. financial advisor, said an 81-year-old client called him about the drop. Although Foxworth thought the client had called out of worry, the man actually wanted to invest more money in stocks.
Bill Hilgedick, a financial advisor with Edward Jones in Eau Claire, Wis., said he is seeing the same reaction as some clients try to diversify by buying stock in sectors underrepresented in their portfolios.
"Yesterday was a busy day," Hilgedick said Friday. "I was placing a lot of buy orders."
For investors who engage in short-term trading, this week was rough, Rappaport said. "Do you know how to spell angst? Traders trying to enter and exit strategically are finding it not very doable in a market that's collapsing," he said.
Financial advisors were warning against bailing out altogether. David Tysk, a financial planner with Ameriprise Financial Inc. (AMP) in Bloomington, Minn., compared the markets to teenagers with a curfew: They won't behave the way you want them to.
"We have to have a long-term strategy and methodology in place," Tysk said. "We do people a big disservice by highlighting these big market swings. The markets are supposed to fluctuate. The markets are doing exactly what they're supposed to be doing."
The market's loss, said Jerry Miccolis, a financial planner in Morristown, N.J., "was large in absolute terms...but in relative terms it was not dramatic." On Thursday, "nearly everything went down. When you look at the whole market sliding, the last thing you want to do is liquidate."
Many financial advisors want to keep their clients focused on the long haul. To that end, Foxworth said, he isn't even reaching out to clients to head off their anxiety.
"We talk to people about asset allocation and long-term investing," he said. "To pick up the phone and call people may send the wrong signal."
Dick Bellmer, a financial planner at Deerfield Financial Advisors in Indianapolis, said a decline "doesn't make anybody feel good." He said he constantly reminds his clients of the importance of sticking to predetermined asset allocation, regardless of where the market moves.
He has reassured some clients that, despite this week's drop, their portfolios are up overall for the year. "If people don't panic, they'll be better in the long run," he said.
Adam E. Carlin, a financial advisor with Citigroup Inc.'s Smith Barney in Coral Gables, Fla., received two calls since the market dropped - both from new clients. One, a doctor from New York, emailed Carlin shortly before the market decline to say that she wanted to discuss investing more aggressively. Out of concern that she might not have understood the risks, he emailed her back to say that he wanted to meet and talk this over. After the market dropped, he contacted her again, and she replied that maybe she had gotten a bit ahead of herself.
"Once you have had an opportunity to educate clients," Carlin said, "you don't get the panicked emails or phone calls." .
Baron Nathan Rothschild once said that "the time to buy is when blood is running in the streets.”
The time to sell, however, is when complacency runs deep.
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