Tough Day In The Markets, Time To Buy?
Tough day in the markets yesterday with the Dow and the S&P down more than -3% and the Nasdaq down over -4%.
So what happened yesterday to cause this?
There was no one thing in particular. It was the same old usual suspects just like last week: profit taking after a fantastic quarter, trade tensions with China, and a spike in bond yields.
As for profit taking, nothing wrong with that. But the pullback is way overdone.
Regarding trade tensions with China, it's true that a deal with them will be harder to come by than it was with Mexico and Canada. But a new deal is in both country's best interest. And the trade standoff is costing China more than the U.S. at the moment. Interestingly, a Chinese foreign minister yesterday said that he was "a little bit more optimistic" on a breakthrough on resuming trade negotiations. This came in response to President Trump's warning that he would block trade talks with China at next month's G20 summit if certain concessions weren't made beforehand. Given that, I would not be surprised to hear some more positive news regarding trade talks very, very soon. And when we do, I would expect the market to rally in relief.
On the subject of yields, I'll say what I've been saying all week; the announced $3 billion bond sale by China, which is scheduled for this week, is what's been weighing on bond prices and causing yields to spike. Not fears of inflation. Not fears of a slowdown in the economy or a recession. None of that. Anybody believing that, in my opinion, is terribly misunderstanding what's really going on.
Getting back to the market, I think this selloff is near its end. Could still be some more downside. But getting close to a bottom, if we haven't seen it already.
As for the market going back up -- the economy is too strong not to, inflation is not a problem, interest rates are still near historic lows, corporate profits continue to climb, and consumer sentiment and employment are near record highs. These are not stats of a market ready to rollover. These are stats of a market ready to resume its uptrend and soon embark on its next leg up.
So don't be afraid of this pullback. Instead, make sure you're taking full advantage of it.
That means getting into the right stocks to take advantage of the rebound, and staying out of the wrong ones. Don't squander this time with preventable mistakes. Making money in the market is easier than you think. Just stick with proven, profitable stock picking strategies and you'll soon be beating the market. For tips on how to do that, and how to turn the probabilities of success in your favor on your very next trade, be sure you read my latest commentary...
Read This Before Your Next Trade
Kevin Matras
Executive Vice President, Zacks Investment Research
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