Time for investors to panic? 3 Wall St vets say no
With the stock market's rapid collapse spooking even the experienced investment pros, the rush for the exits by bewildered investors can be jarring. The surprise sell-off is what the bears relish -- but also a prized setting for opportunistic investors eager for bargains.
To be sure, most investors are in a panic, so now the frantic question is, "Is this precursor of things to come in 2016?" Clearly there's enough distressing news, ranging from the latest Iran-Saudi Arabia tension, economic slowdown in China and more recently North Korea's supposed hydrogen-bomb testing, to justify dire forecasts.
But precisely because of this thick overlay of dark news, the market could well be ready to do its usual picker-upper turnaround by climbing the proverbial "wall of worry," a Wall Street maxim the bulls love to invoke when the market is plunging.
A number of seasoned market watchers are reminding clients that "we've been here before," suffering from turmoil that suggests the market eventually, if not inevitably, will reverse course and pile up huge returns as it had past downturns.
To support such an argument, some market analysts have turned to data and market history to determine the consequences of similar turbulent events that plagued investors in past years.
Sam Stovall, chief equity strategist at S&P Capital IQ, found some encouraging numbers. In the nine times since World War II that the S&P 500-stock index fell by 1 percent or more on the opening day of trading, the market ended the month higher in six of those years.
Even more pertinent, records show the market ended up for the full year during those testy 12-month periods, Stovall notes. Based on the facts gathered from the market's past fickleness, he concludes that "history suggests, but doesn't guarantee, that investors should not expect full-year results to be a reflection of opening-day activity."
In short, the market's sharp decline this week can't necessarily be taken as an ominous omen for the rest of the year.
That probably is among the reasons why some highly respected market watchers haven't panicked in dealing with the market's latest downturn, unsettling as it may seem.
In spite of what's happening, "Stock prices should move higher this year," asserted Ed Yardeni, president and chief investment strategist of Yardeni Research. Acknowledging that he and Joe Abbott, Yardeni Research's chief quantitative strategist, are secular bulls, Yardeni doesn't see the current sell-off as a harbinger of a bear market.
"A bear market in 2016 would certainly surprise us," he said.
But it's also possible that stocks could end up in a flattish mode similar to what happened in 2015, he added. Last year's lackluster performance was weighed down by a hefty 23.6 percent drop in the S&P's energy sector, Yardeni noted. Still he expects other big sectors, particularly consumer discretionary, consumer staples, financials, health care and information technology to deliver higher profits and push up stock prices.
So, Yardeni remains upbeat: "We are sticking with our 2,300 target for the S&P 500 this year," he said. The S&P 500 on Thursday drifted below 1,950 Among the key factors likely to affect that forecast are global economic growth, which he expects will remain lackluster, and the falling price of oil.
On balance, Yardeni believes the plunge in oil prices should stimulate global economic growth. So, he is encouraged to see that world crude oil demand rose to a record 95.2 million barrels a day over the past 12 months through November, up 2.4 percent year over year -- the fastest growth rate since July 2011, he noted.
Yardeni points out that the growth rate in world crude oil demand has tended to be highly positively correlated with the growth rate in S&P 500 revenues since 1955.
Also unshaken by the market's plunge is seasoned investor Mario Gabelli, chairman and CEO of Gamco Investors. He's neither deterred nor discouraged by the market's nasty behavior, and is maintaining a positive outlook, based largely on some strong fundamentals. That includes what he sees as an improving U.S. economy supported in part by steady employment gains, rising wages and healthy consumer spending.
A true and tried value investor, Gabelli is an intrepid stock picker in constant search of companies whose shares are trading at prices way below the intrinsic worth of their assets. Many of those end up in M&A deals, he noted.
Now Gabelli sees buying opportunities in three sectors: defense, infrastructure construction and small regional banks.
Government spending on defense, mainly for weapons and military equipment, has been on the rise recently, he noted, refueling the vitality of the defense industry. Similarly, increased federal investment on infrastructure projects, such as roads, bridges and airports, has been a boon to large and small construction companies.
Among banks, Gabelli expects the rise in interest rates to significantly benefit the small financial institutions that cater mainly to small and midsized businesses. These small to mid-cap banks are among the most undervalued financial institutions in the country, he said.