Investors again face conundrum: To bail or to buy?
As more Wall Street analysts prognosticate that a 10 percent stock market pullback is on its way, the inevitable question has resurfaced: Is the long-running bull market on its final leg? Investor anxiety got all the more exacerbated when the Dow industrials staged a triple-digit dive last Thursday after several days of weakness.
But we've been here before. When the stock market displayed signs of frittering away its huge gains over the past eight years, each time the market disappointed the bears, greatly, by roaring back — and continuing its upward momentum. That's partly because the economy keeps improving, bolstered by continued corporate earnings growth, positive employment numbers, and low inflation. And as a reminder to investors, the "buy the dips" in past market slumps worked well for those who were opportunistic enough to do so.
Byron Wein, vice chairman of investment firm Blackstone, which has more than $371 billion in assets under management, said it best, succinctly, when he summed up his view on this latest investor concern: "Nothing to panic about."
In an interview with CNBC last Friday, the widely followed Wall Street veteran with 50 years in the investing business argued that investors must look at the "underlying fundamentals" -- and those look very encouraging, he noted. "I think we could be headed for 3 percent [economic] growth by year's end and earnings are coming in much better than expected," Wein said. Earnings, he emphasized, are what most drives the market, "and they are looking very good."
Wein thinks the recent stock market weakness on diminishing prospects for President Trump's supposedly business-friendly agenda "is nothing for investors to panic about." He conceded that he's worried Trump won't get a lot of his program through, "but offsetting that is the economy doing better than I originally thought."
A number of leading Republicans in Congress have backed away from Trump for his remarks last week defending elements of a pro-Nazi rally in Charlottesville, Virginia, resulting in the Dow Jones industrial average tumbling 274 points last Thursday. There was investor concern, Wein said, that the rift may stall the President's pro-growth agenda.
"But this is just one of those inevitable corrections that occur from time to time," Wein noted. True, a 10 percent correction could be coming, but when it's over, the pullback should be followed by another rebound, Wein reassured, and the market's upward momentum will continue.
Of course there is the huge worry over such geopolitical problems as the North Korean nuclear threats and continuing terrorist attacks, at home and abroad.
Sam Stovall, chief equity strategist at CFRA Research, sees the equity markets recovering each time they fall on such geopolitical concerns. "The markets are in the process of repeating history by swiftly recovering all that was lost during the selloff blamed on the increase in heated rhetoric between the U.S. and North Korea," he noted.
Stovall said buying the dips will increasingly be the mantra of both large and small investors as they benefit from the patterns that he and many other market watchers see. No longer is it a short-term strategy used by swiftly moving traders; it has become a mainstay for long-term strategists and investors, given the source for profits these dips have repeatedly turned out to be.
Even as there is worry that a 5 percent, or more pullback will occur, Stovall doesn't believe that a bear market -- usually defined as a 20 percent drop or more -- is likely to occur.
True, geopolitical tensions have caused many investors to wonder if the previously unstoppable advance has finally hit the wall and is now vulnerable to a correction of around 10 percent that could result in a bear market. But if history repeats, more than 85 percent of all declines of 5 percent or more turned around before eclipsing the negative-20 percent threshold that would have classified them as bear markets. They also recovered all that had been lost in an average of only four months.
"Calling for a bear market and recommending that investors lighten up their exposure to equities may end up doing more harm than good to their portfolios and psyche," Stovall warned. He reminds us that bull markets are usually crushed by recessions —and there isn't any sign, Stovall said, that there is one on the horizon.