On The Move: Stock Market Selloff
Stocks are feeling the heat
and this week were seeing a broad market pullback. On May 31st, the S&P 500 climbed as high as $1,345. Just one week later, the widely followed index dropped as low as $1,285
a 4% drop.
While 4% is hardly catastrophic, its a fairly sizeable move in a week. And perhaps more telling, there are several factors behind the pullback. In other words, its possible there could be some momentum behind the selling.
However, its not all bad news especially for small cap investors.
Ill get back to that in a minute, first lets take a closer look at whats causing the downward move
The biggest reason for the pullback is the flood of negative economic data.
Most importantly, the job market has taken a turn for the worse. The most recent unemployment report was much worse than expected. And, weekly jobless claims are heading in the wrong direction.
Whats more, the housing market continues to struggle with no recovery in sight. To top it off, industrial and retail spending are down. It doesnt exactly inspire confidence, does it?
And thats not all
Corporate earnings are falling short of expectations.
Look, it was unrealistic to assume companies could keep up their amazing run of earnings growth. Still, when the music stops, people head for the exits. And lately, investors have wasted no time in taking profits.
As if bad economic news and declining corporate profits wasnt enough, were also seeing fallout from the European debt crisis.
The situation in Europe is weighing heavily on the global economy. Many companies, governments, and individual investors are invested in the health of European businesses. And those companies may have a lot to overcome if the Euro plummets or interest rates skyrocket. Both outcomes are more likely than ever thanks to the massive bailouts on the table.
And lets not forget the end of QE2
With the Fed ending its current round of quantitative easing, investors are taking fewer risks with their money. Whether or not QE2 is working as intended is up for debate but it definitely helped with investors confidence in the stock market.
And as of this writing, the Fed has no intention of doing a QE3.
So is there any good news?
Fortunately, the future doesnt look as grim as the present. And we might be on the verge of a great opportunity for small cap investors.
Yes, small caps are also feeling the sting of the recent selloff. Investors tend to flee small caps quicker than blue chip companies. In many cases, small caps dont offer a dividend. And investors typically want to hold on to their income stocks longer even during a selloff.
Heres the good news
The current selloff is providing savvy small cap investors with a great buying opportunity. There are some great small companies now trading at nicely discounted prices.
Even better, the bad news is pretty much all out in the open and seems to be fully reflected in stock prices. Weve seen a lot of negative information but the market didnt collapse. Its more of a minor bump in the road than a drop off a cliff.
And when the good news starts rolling in, investors will pile back into stocks especially penny stocks!
Most experts expect a far stronger second half of the year. Nows your chance to find some great deals and get bargain basement prices on several undervalued gems. Dont let the current selloff scare you away from a great opportunity in small caps.
Yours in profit,
Gordon Lewis
Category: Investing in Penny Stocks, Penny Stocks On The Move
