By Jonnelle Marte
Stocks fell for the fifth straight day Tuesday, marking the steepest decline of the year. But many advisers say this pullback is temporary—and, if anything, investors should be buying more stocks.
The Dow Jones Industrial Average dropped 213.66 points Tuesday to 12715.93 and the Standard & Poor’s 500-stock index fell 23.61 points to 1358.59. Investors cut equity exposure partly due to a combination of renewed concerns about the European debt crisis, and the weak outlook for the first quarter earnings season, which kicked off Tuesday afternoon.
But five bad days don’t necessarily make a trend. In fact, some advisers say the market was due for this drop following the year’s record-setting start. “Provided we don’t have any big surprises, the economy is steadily growing,” says Keith Amburgey, chief investment officer for Rutherford Asset Planning, a wealth management firm based in Naples, Fla. “If you’re under allocated I would buy.”
Market valuations are still favorable, Amburgey says, and the recent drop actually makes stocks more affordable. While investors should expect more volatility in the near term, “we’re still long term bullish,” he says. Sam Stovall, chief equity strategist for S&P Capital IQ, says he expects the market to fall between 5% and 10% before returning to levels seen at the start of the month. Markets should be buoyed by rising corporate profits, even if earnings grow at a slower pace than a year ago, he says.
Of course, some analysts say the worst is yet to come, and the sell-off will continue. Mark Grant, managing director at Southwest Securities in Dallas says the Federal Reserve’s apparent lack of desire to provide further economic stimulus will continue to batter markets in the months ahead. “Take your profits in equities,” he says. “America has been living off this quantitative easing for the last four years and it’s now coming to an end.” The U.S. economy’s recovery is far from guaranteed, he says. Last week, for instance, the Labor Department reported the addition of just 120,000 jobs in March, the first time since November 2011 that figure came in below 200,000. Grant also says Europe’s debt crisis — particularly in Spain, Greece and Italy — is also far from over.
Ambergey, however, recommends that investors who are still working put up to 70% of their portfolios in stocks, including dividend paying stocks from blue-chip companies and financial stocks. If the housing market bottoms out this year, that should help financials, he says. Erin Davis, an analyst at Morningstar, says the brave of heart may even find buying opportunities in European financial stocks. Europe’s debt woes have been kept at bay by the European Central Bank’s long-term refinancing operation, which provided more than €1 trillion in low-cost financing to eurozone banks for three years. Emerging market-focused lenders like HSBC and Standard Chartered also provide buying opportunities, she says, as does Julius Bear, a smaller Swiss-based private bank.
This story was co-written by Quentin Fottrell