Stocks Sold Off For Second Day, Rebound Expected
The sell-off continued yesterday with most of the major indexes off about -2%.
Same story as the day before: profit taking and position squaring after a fantastic quarter, trade tensions with China, and a spike in bond yields.
But also as I said the day before; the pullback is way overdone; while tensions are high with China, there's signs the impasse could soon be broken and lead to resumed trade negotiations; and the spike in bond yields has more to do with China selling $3 billion worth of bonds this week, and not because of recession fears, inflation, or worries the economy is slowing down.
There's no denying the pullback is painful. (Aren't they all?) And the market is now trading where it was at the beginning of July, effectively wiping out all of the gains made since then.
But the economy is even stronger now than back then, and looking better all the time.
True, the trade stand-off with China is worse. But in the meantime, we negotiated new deals with Mexico and Canada, and had productive trade understandings with the EU, Japan and South Korea.
But the tensions with China do not warrant the sell-off we saw. In fact, given those tensions, the IMF still reiterated their 2.9% estimated growth rate for the U.S., and only reduced China's from 6.8% to 6.6%.
That being said, I think the market will soon hit bottom, if it hasn't done so already.
What's the catalyst? Could be anything from selling exhaustion given the severely oversold conditions, to some friendlier tones coming from China, to the start of earnings season which officially starts next week (but unofficially starts today).
So do not get spooked by this market.
This is all a part of trading. The least fun part. But a part of it nonetheless.
And I'm expecting a rebound shortly.
Looking out further, I'm expecting a strong finish to the end of the month, and the end of the year. So make sure you're fully taking advantage of this pullback by getting into stocks at prices you only wished you could have gotten in at before.
Best,
Kevin Matras
Executive Vice President, Zacks Investment Research
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