Why I'm Loving This Pullback
The markets sold off again on Monday, compounding Friday's pullback. Since the S&P hit its high on 1/26/18, the market has pulled back by nearly -7.8%.
And I couldn't be happier.
The market surge in January caught many investors flatfooted. And that left plenty of people afraid to buy after missing out on such a spectacular move.
This recent pullback is exactly what the market needed. And those who missed January's run-up now have the chance to buy at levels not seen since early December.
I know pullbacks can be tough when you're going thru them. But if you believe as strongly as I do that this market is far from over, then every pullback looks like a welcomed sale and not a going out of business sign.
Why am I so confident in this bull market?
For one, I believe this pullback is just long overdue profit taking with the catalyst being Thursday's spending bill deadline. With the hyper-partisanship in DC nowadays, odds are high that they will fail to come to an agreement given the entrenched positions concerning DACA and border security. Eventually, this will be worked out. But the uncertainty surrounding these talks can be unnerving and why I think this deadline helped weigh on the market.
But all of the reasons why investors were/are bullish on the market last week, last month, and last year, are still there.
Tax cuts, which have only just begun to kick in, will usher in decades of new prosperity. Job growth is on fire. Companies have big plans to expand their operations with many announcing they will be doing so in the good ole' USA. Corporate profits are surging. Consumer confidence is soaring. Next quarter's GDP is forecasted at over 4%, which is more than double the average GDP for the majority of this bull market. The pullback has knocked P/E ratios down. And when analysts finally begin factoring in the benefits that companies will receive due to the tax cuts, the expected increase in earnings estimate revisions will instantly make stocks look cheap again. And I could go on and on.
This is not fantasy. It's all real.
If none of the above were true, I'd be biting my nails to the bone after this pullback. But knowing the rock solid underpinnings of the economy, and this market, makes me excited when a pullback like this happens since it gives investors a chance to buy their favorite stocks, and new opportunities as well, at discounted prices. And who doesn't like a discount?
Of course, nobody knows if yesterday's pullback was the end of the sell-off. Or if it's today. Or tomorrow. Or next week. Or even next month. But because I'm bullish on this market, I'd be buying a little bit more every chance you get because one of these days, the low you see will be it, and the larger uptrend will resume in earnest.
I myself added on yesterday's dip. And if we see one again today, I'll likely do the same.
Simply put, if you believe this bull market has more to go, then buying dips is the thing to do.
If you don't think it has more to go, ask yourself why. Be sure to separate emotions from facts and logic.
But if you're like me, who expects this bull market to eclipse the longest bull market on record of 12.3 years (this one is only 8.8 years long - which means we should have at least another 3.5 years left given the historic tax cuts which should lead to historic gains), then embrace the pullback and get your watchlist ready so you can act.
Can't wait to see what the market does today. Either way, I'll be smiling!
Best,
Kevin Matras
Executive Vice President, Zacks Investment Research
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