Fall is in the air and so is fear. The Middle East is at war. Our Federal Reserve Bank is clueless about what to do. Volkswagen’s diesel deceit threatens to undermine Germany’s economic strength. Commodity giant Glencore says it is solvent, just like Lehman did back in the day. China’s national coal company is planning to fire 100,000 workers. Even employee-friendly Whole Foods Market (WFM) will be laying off 1,500 people.
Things haven’t seemed this bad since, well, 2008. Stock market action has been bad all year but really fell off a cliff over the past couple of months.
Is there any good news out there for traders and investors?
Yes.
The ironically named Investors Intelligence survey says that, as of Sept. 29, there were fewer bullish people out there since, well, late in 2008. Like today, there seemed to be insurmountable worldwide problems that meant global depression was on the horizon.
Stocks were rising and falling like waves while also eroding consumer confidence and investors’ will power. Bullish sentiment dropped to a multiyear nadir of about 23%. Shares of blue-chip companies were being sold in disgust as the world we knew was gone forever.
We all know what happened next. Unemployment got worse, businesses were hurting and profits plummeted. Strangely, though, on March 9, 2009, without any true catalyst, the bottom was in. Shares started climbing even as the doubters keep calling for another leg lower.
Negative thinkers like to point out the percentage declines that have already taken place. I remember them saying, “With the market down 50% it will take at least five years of normal returns just to get back to where we were before the bubble burst.”
Stocks recovered much quicker than expected and by this year’s peak, the Standard & Poor's 500 had more than tripled from the 2009 low. If you buy after a 50% decline, you’ll make a 100% gain if that stock simply gets back to its old level.
Bullishness troughed just a few months before the market reversed. That upturn began during the Great Recession, not after it. If the present selloff follows a similar script, it is more appropriate to be putting money to work right now than to be cashing out.
By the time you realize the tide has turned, the bargains will be gone.
