News Analysis: U.S. markets tumble, but bottom remains unknown

0 Comment(s)Print E-mail Xinhua, May 19, 2022
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by Matthew Rusling

WASHINGTON, May 18 (Xinhua) -- Investors are biting their nails as they wait for the market to hit bottom, so they can scoop up stocks at a discount and make a killing when shares rebound. But it's anyone's guess when the market will bottom out.

The Dow Jones Industrial Average plunged over 1,000 points on Wednesday, after news of a disappointing earnings report from retail giant Target, which sparked yet another sell-off among jittery investors.

That news came as savvy, long term investors eagerly await a bottom so they can purchase stocks at a discount, as well as get some clarity on when the market might head back upward. But economists and analysts are far from unified over when a bottom will occur.

Desmond Lachman, resident fellow at the American Enterprise Institute and a former official at the International Monetary Fund, told Xinhua the economy is headed for a hard landing that will tame inflation but disrupt the stock market.

But the silver lining could be that the market would finally hit bottom, at which time investors could start to pick stocks that have nowhere to go but up.

A hard landing could be followed by a complete about-face in Fed policy, which could send stocks surging.

"If this (a hard landing) should occur, my expectation is that the Fed will make yet another policy U-turn by year end ... to support the stock market with a new round of monetary policy easing," Lachman said.

One much-discussed indicator is the Cboe Volatility Index, which measures expectations for volatility over the coming 30 days. The index has hit an average of 37 in previous market bottoms. That number on Wednesday jumped over 14 percent to just below 30. That's well above the long-term median of 17.6, but still not at panic levels.

The index skyrocketed to 82.69 in March 2020, at the start of the COVID selloff, and saw highs of 80.86 in 2008, at the height of the Great Recession, but some analysts believe markets will need to see more volatility before the market sees a true bottom.

Veteran investor Mark Mobius, founding partner at Mobius Capital Partners, told CNBC Thursday: "I think what's happening is you have these crypto currencies driving a lot of pessimism. When you see the Bitcoin and a lot of the other cryptocurrencies going down ... It's a leading indicator of the pessimistic outlook."

The crypto currency issue is "to me a leading indicator, so we're probably going to go lower on the S&P 500," he said.

However, he added that "this is a great time to be picking up some bargains if you're looking at the right stocks."

John Blank, chief equity strategist and economist at Zacks Investment Research, told Xinhua that an appropriate strategy for investors is simply to continue to put their usual allocation into their portfolios - even in this market environment.

"If you're 30, 40, 50 (years old), and you're going to pull your money out in ten years, then you want to carry on," regardless of any negative economic environment. "Because that's when you'll get the lowest prices."

If an investor, for example, wants to buy 500 shares of a stock, it's best to break it up by purchasing 100 shares per month over a five-month period, Blank said.

The average investor will never know when a stock will hit the lowest possible purchase price. Investors should simply purchase a stock they like at a price that is good enough, even if they missed an opportunity to buy it at the ideal price, Blank added. Enditem

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