Here’s Zack’s Research on the silver linings to market selloffs (this remains my mantra):
3 Benefits of a Stock Sell Off
Some stock selloffs are a precursor to the next bear market. The vast majority are nothing more than pauses before the next run higher. The evidence is plentiful in the many, many sell offs endured over the past 7 years of this bull market.
Gladly there are 3 distinct benefits created by these painful selloffs:
1) Better Value Proposition : Lower stock prices, while the earnings outlook is unchanged, means that stocks become a more attractive value.
2) Flight to Safety : Investors will run to the safety of bonds during these times, which lowers the interest rate. This too makes stocks a better value proposition compared to their main investment rival in bonds.
3) Lowered Expectations : The next move for the market is typically predicated on how economic data compares to expectations. As stocks go down, fear goes up which also lowers expectations. This makes it easier for the next round of economic data to impress investors which acts as a catalyst to push stocks higher. This part is important as earnings season kicks off next week.
Consider the above 3 points when deciding your investment strategy at this time.
aka Steve Reitmeister
Executive Vice President, Zacks Investment Research