Shell shocked investors are searching for answers after last week's stock market plunge.
Volatility returned with a vengeance. The financial media has also ratcheted up the noise to unprecedented levels. The financial fear factory is on full tilt.
Fortunately, some folks kept a level head during last week's manic market action. If we want to live to fight another day in these markets, we need to take these wise words to heart...
"Everyone wants a fancy-sounding story for why the stock market goes down, but in most cases it's as simple as 'because it went up a lot.'"
–Cullen Roche, founder of Orcam Financial Group
Any time the stock market falls, investors always need to find a reason for the plunge.
The financial press is quick to hype an economic talking point or political event that can explain a market drop. But it's downright impossible to pinpoint a precise cause of a drawdown.
We already know the market was grinding higher without a correction for far too long. Something had to give. It might sound overly simplistic. But it's the truth.
Instead of concocting a complicated narrative to explain every day the Dow finishes in the red, we should instead focus our energy on finding stocks to buy when a meaningful bounce appears.
"The recent market swings show the ‘Trump rally’ was never about Trump."
– Jim Cramer
Trump takes office. Stocks go up. It's that simple...
Since Trump took office, all we've been hearing about is the Trump rally.
Whether it was Trump's pro-business agenda, a renewed focus on infrastructure, or tax cuts, everyone loves to give credit to Trump for the surging stock market.
But after last week's action, investors are having trouble making sense of it all. Even the president seems confused:
The stock market and the economy are two different beasts, of course. But that won't stop Trump from taking credit for every move higher - or his opponents blaming him for every drop. Neither side tells the whole story.
It's also important to remember that U.S. markets don't exist in a vacuum. In fact, we've experienced a globalmarket rally over the past 16 months that has pushed stocks across the world to new highs. A worldwide bull market is the result of much bigger forces at work than a few presidential tweets.
“We did no selling and we actually put a little more money to work.”
– Leon Cooperman, chairman and CEO of Omega Advisors.
As the market streaked higher in January, we mentioned that when stocks finally tank, no one will be ready for it.
When the correction finally hit, most folks sold into the panic. Bloomberg notes that investors pulled a record $17.4 billion from the SPDR S&P 500 ETF last week. As volatility stormed back into the markets, everyone sold out.
What the heck happened to the "buy the dip" crowd? Most investors could only dream of a pullback that could offer a rare buying opportunity while everyone else is running for cover. But now that it's here, no one wants to buy. Except a few seasoned pros…
Legendary investor Leon Cooperman is one of them. Cooperman told CNBC last week that he wasn't running scared from this correction. In fact, he's putting new money to work.
For long-term investors, a 10% correction is a great opportunity to add to positions and even grab onto a stock you might have missed out on during the bull market. But only if you have the guts to pull the trigger...
Sincerely,
Greg Guenthner
for The Daily Reckoning