Investors need to sit tight until the stock market recovers from its first correction since 2011, according to a MarketWatch columnist.
While stocks may sink further before completely bouncing back, they have shown a steady resilience since the most recent bull market began in 2009, writes commentator J.J. Zhang
“There’s a possibility of a bigger bottom coming,” he says. “On the bright side, in previous cases, the real bottom was not much lower than the initial low.”
The S&P 500 last month entered correction territory after falling 10.8 percent from this year’s record high. China’s currency devaluation sparked investor fears that the world’s second-biggest economy was in deep trouble, leading to a global sell-off in stocks.
Since 2009, the Federal Reserve helped to lift the market with loose monetary policy including several rounds of bond-buying that pumped trillions of dollars into the financial system. The central bank on Thursday kept interest rates near zero percent, where they’ve been since 2008, citing global economic weakness.
Zhang says historical data suggest stocks will rebound from recent weakness. The 17 market declines since 2009 took an average of 26 days to bottom out and an equivalent 26 days to recover.
“Inevitability the question comes back to what an investor should do,” Zhang says. “The most wrong answer? Panic and sell indiscriminately.”
Meanwhile, fund managers are bracing for a recession as they pull money out of emerging markets like China and seek the safety of cash and bonds, according to Bank of America Merrill Lynch.
The bank’s monthly survey found that the percentage of investment professionals who were weighted toward stocks fell from 41 percent in August to 17 percent this month, the lowest in three years. Fund managers also had the worst expectations for global economic growth in five years.
That kind of widespread gloom may point to an economic slowdown — or conversely, be a contrarian set-up for stock-market gains, said Michael Hartnett, chief investment strategist at BofA.
“Unambiguous pessimism means risk assets riper for a rally,” he said in a Sept. 15 report obtained by Newsmax Finance
. “If no rally, then markets ominously hinting ‘recession’ and/or ‘default' imminent.”
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