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Sept. 12, 2016, 9:25 a.m. EDT

Don’t fear the selloff—this is why you should keep buying stocks

Critical information ahead of the U.S. market’s open

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By Barbara Kollmeyer, MarketWatch


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Fear factor

Let the wild rumpus start? Well, maybe.

Equity markets globally have been taking it on the chin on Monday, in the wake of Friday’s selloff. The market is clearly seeped in fear, though the jury’s a little mixed on whether the gnashing of terrible teeth and showing of claws will go on unfettered.

“Previous falls have seen a wave of liquidity move into the market to buy on any weakness, but the volume of concerns—in particular in relation to central bank support—is making it far more difficult for investors to simply brush off this latest downturn as an opportunity rather than a threat,” Interactive Investor’s Rebecca O’Keeffe told investors in a note.

Keith Parker, global equity strategist at Barclays, cautions that investors may not be ready for what comes next. “With U.S. equities futures positioning near the highs and short interest near the lows, investors don't seem to be positioned for a turn in the data cycle and a bottoming/turn in the rates cycle,” he said in a note Monday.

Parker says the risk isn’t due just to central banks, but also to politics. This weekend’s mental image of Hillary Clinton hacking away on her sick bed doesn’t help, and Wall Street’s biggest nightmare—a Trump presidency—is starting to get priced in, says iBank Coin’s The Fly .

We’re getting the last of the Federal Reserve speakers today, before the quiet period ahead of the central bank’s Sept. 20-21 meeting. All eyes and ears will be on the Fed’s resident dove, Lael Brainard, who will is tapped to speak later. O’Keeffe says fingers are crossed Brainard will “maintain her dovish stance and ease market fears for next week’s Federal Reserve meeting.”

But are investors just fearing the fear? That’s what our call of the day says. Scratch the surface, and this market isn’t in such bad shape and bargains are around the corner. Our chart backs up a shiny, happy theory that doesn’t go so unwanted on a Monday.

Key market gauges

S&P 500 , Dow industrials  and Nasdaq-100futures are in the red, but things are calming down a little. That comes after a rough session in Asia /zigman2/quotes/211618636/realtime XX:ADOW +0.81% , where stocks plunged and the Hang Seng Index /zigman2/quotes/210598030/delayed HK:HSI +0.01% fell 3.3%, the biggest drop since February. In Europe /zigman2/quotes/210599654/delayed XX:SXXP +0.23% , French and German stocks are around 1.7% lower.

Crude oil /zigman2/quotes/209726727/delayed CLV26 -50.45% is down 2%, owing to a hangover from a U.S. rig-count rise.

Gold is starting to pitch lower, while silver is getting hammered, off about 2.6%.. The dollar /zigman2/quotes/210561789/realtime/sampled USDJPY +0.2813%  is pulling back as jittery investors seek some safety in the yen. Treasury yields /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y +0.14% , meanwhile, are marching higher.

Check out: The world’s safest investment just got more dangerous

The call

Cracked Market’s Jani Ziedins has a theory on why markets sold off on Friday, and it’s not what lots of people are thinking.

His argument is based on game theory: “Traders are not selling the economic damage of a rate-hike (real), they are selling ahead of what they think will cause a selloff (imagined),” he writes .

In other words, if you think the crowd is getting spooked, you sell ahead of that anticipated fallout. But at the end of the day, there’s no real meat to this selloff.

“If no one is changing their personal outlook about the economy, then they will continue to have the same appetite for stocks. While they might cash in some chips ahead of the widely expected ‘rate-hike crash,’ they will jump back in once the waves settle down,” says Ziedins.

The upshot is, the market’s weakness will be short-lived, so be ready to jump in. Of course, knives could keep falling today (as they are in the early going), Ziedins says, so maybe wait a bit for things to settle.

Not everyone would agree here, obviously. Mohamed El-Erian, in an op-ed for Bloomberg, says there’s good reason to believe a “buy-the-dip” move may not work this time .

/zigman2/quotes/211618636/realtime
XX : Dow Jones Indices
3,341.75
+26.82 +0.81%
Volume: 0.00
Nov. 15, 2019 10:42a
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/zigman2/quotes/210598030/delayed
HK : Hong Kong Exchange
26,326.66
+2.97 +0.01%
Volume: 1.18M
Nov. 15, 2019 4:08p
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/zigman2/quotes/210599654/delayed
XX : STOXX
405.35
+0.94 +0.23%
Volume: 0.00
Nov. 15, 2019 4:27p
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/zigman2/quotes/209726727/delayed
US : U.S.: Nymex
$ 52.10
-53.05 -50.45%
Volume: 0.00
Nov. 14, 2019 5:05p
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/zigman2/quotes/210561789/realtime/sampled
US : Tullett Prebon
108.7170
+0.3050 +0.2813%
Volume: 0.0000
Nov. 15, 2019 10:42a
loading...
/zigman2/quotes/211347051/realtime
add Add to watchlist BX:TMUBMUSD10Y
BX : Tullett Prebon
1.83
+0.0026 +0.14%
Volume: 0.00
Nov. 15, 2019 10:42a
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