Investment guru Ron Insana cautions that even though the stock market may rebound for a day or two from its October bloodbath, the selloff may not be over.
“There are too many variables in the weeks and months ahead to make a confident prediction about where the economy and market go from here,” Insana wrote on CNBC.com.
He said, however, if investors listened to strategists who had recommended raising cash levels all year, they would be breathing easier today as cash has been among the best performing assets this year.
After a plunge early in the year, the things investors had worried about most, from interest rate risk, to political risk, to foreign policy risk, were virtually ignored by the financial markets.
“A little more than a month ago, the Nasdaq Composite index hit a new all-time high, soon followed by the Dow Jones Industrial Average and the S&P 500 index.
It was hard, at the juncture, not to capitulate to a market that had rebounded so sharply and recommend everyone get back into the pool. However, in flash, the major averages are now down 10 percent, or more, from their recent highs in one of the worst Octobers since the financial crisis in 2008,” Insana said.
“And the bricks in the ‘wall of worry’ are still there and solidifying,” he said.
“Pattern recognition is a key component in dealing with market cycles. Many of us have seen this pattern before and would likely bet that the most negative component of this particular pattern has not yet run its full course. Cash is king until further notice.”
Meanwhile, the S&P 500 and the Nasdaq were on track to post their first two-day gain this month on Wednesday, as Facebook (FB.O) led a slew of encouraging earnings reports that boosted sentiment at the end of a tumultuous October for global markets, Reuters reported.
“You have had such a pounding here in the month of October that at some point you would expect some bouncing to begin and hold,” said Chuck Carlson, chief executive officer at Horizon Investment Services in Hammond, Indiana.
“You are starting to see maybe people wading into the waters with, ‘Time to buy some of these stocks.’ You saw that yesterday, but obviously it just didn’t hold,” Carlson told Reuters.
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