Friday's wild selloff in stocks, which many analysts saw as an overreaction,
could set up a perfect opportunity for investors to go bargain hunting.
The frantic $11-a-barrel run-up in oil prices and a 22-year high in
unemployment sparked yet another round of panic-selling, a trend market pros
say will continue until people stop getting rattled by every bit of bad news
that comes along.
"It's the classic knee-jerk overreaction," Diane de Vries Ashley, managing
partner of Zenith Capital Partners, said of Friday's market implosion. "I
admire the concept of a thoughtful and logical market, I just don't think it
exists."
The unemployment report set the stage for the sell-off.
Nevermind that the total number of job cuts in May was less than Wall Street
had anticipated. Traders instead focused on the sharp rise in the unemployment
rate, from 5.1 percent to 5.5 percent. They took that as a sign that the
economy was weakening, even though economists said the rise was attributable
mostly to more unemployed people trying to get back in the jobs market and
college and high school students looking for summer work.
Then there was oil.
Crude prices surged past $138, a phenomenon largely seen as
speculator-influenced even though the supply-demand equation undeniably is a
significant factor in the overall energy picture.
Still, it all added up to a wild close to a manic week in which the market
scored its biggest single-day gain in two months on Thursday, then followed
with Friday's unrelenting drop, in which the major indexes each were down about
3 percent.
Some, though, weren't panicking.
"History dictates that the seeds of the next bull market are being planted
right now. It's very often that first leg up will come amid a gloomy data
scenario," says Quincy Krosby, chief investment strategist at The Hartford.
"Confidence will be the catalyst for that," she continued, "regarding
profits, regarding financials, the consumer, not if but when energy prices come
down. The market has to grapple with many moving parts. We think you're going
to see investors come back increasingly into the equity market."
Among the most beaten-down industries: Airlines, financials, retail, and
virtually anything having to do with luxury or vacations, such as Carvnival and
Royal Caribbean cruise lines.
"This market's been hanging in there, but if oil keeps going higher there's
going to be a massive, massive downside move," says David Rovelli, head of US
equity trading at Canaccord Adams.
But Krosby predicts a stock market turnaround will happen by the end of the
year, after the uncertainty of the presidential election passes and some other
bad news gets washed out and more volume hits stocks.
"The market has quite a bit of uncertainty right now, but there's enough
stimulus in the system to help the economy," she says. "Growth overseas is
still solid albeit slowing, and we think that it's a stock market for active
invetsors. When certainty comes into the market it means the market has already
run up. The job of investors is to find the pockets of strength in an uncertain
enviroment."
Yet it seems investors too often look to sell in uncertainty, when in fact
it can be the perfect time to make profits, a phenomenon that had analysts
shaking their heads Friday.
"There is speculation, there is volatility. Truth be known, you have the
opportunity to take wonderful advantage of these events," de Vries Ashley says.
"The worst kind of trading environment is one in which there's nothing going
on. If that's your basic premise, this almost feels like heaven."
And that even goes with an economy that is in at least a psychological
recession.
"Looking forward for stocks and risky assets in general ... the environment
is improving simply because the Fed has lowered interest rates and as long as
you have a long enough time horizon, these assets perform well," Tom Higgins,
of Payden & Rygel, said on CNBC. "I think that we're going to see this
volatility continue."
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