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Nicklaus: Market bulls turn anxious, but bears haven’t yet been unleashed

28 August 2015

(St. Louis Post Dispatch) 

Ken Crawford, a managing director at Argent Capital Management in Clayton, expects to do just that. “We’ll be looking at those names that looked too expensive two or three weeks ago, and asking if we should pick them up for our clients,” he said.

August 24, 2015 (David Nicklaus)

If stock market investors were waiting for a wake-up call, they just got it.

After making steady forward progress for most of the past seven years, the market seemed to come unglued Monday. The Dow Jones industrial average opened with a 1,089-point plunge, its largest intraday point loss in history, then seesawed throughout the day before closing with a loss of 588 points, or 3.6 percent.

For folks with an eye on historic turning points, the sell-off leaves the broader Standard & Poor’s 500 index 11 percent below the record it set three months ago. A decline of 10 percent or more is considered a market correction, something that hadn’t happened in nearly four years.

If the losses grow to 20 percent, we’ll be in a bear market, but several veteran market watchers said they don’t hear the bears growling yet.

“I would say we’re near the bottom but not at the bottom necessarily,” said Scott Wren, senior global equity strategist at St. Louis-based Wells Fargo Investment Institute. “I do feel we’re going to be higher at the end of the year.”

Norman Conley, chief investment officer at JAG Capital Management in Ladue, believes the U.S. economy still has a lot of momentum. Just as importantly, he thinks stocks are reasonably priced.

“Where we’re going from here, I don’t know, but in terms of where we’re valued, the S&P 500 is roughly average, maybe below average,” Conley said. “Generally speaking, bear markets begin with a lot of optimism and very high valuations.”

Some individual blue-chip stocks had huge swings on Monday. General Electric nose-dived 21 percent before closing with only a 3 percent loss. Apple dropped 13 percent in early trading and closed down 2.5 percent.

Such changes are the hallmark of a market moving on emotion and computer-generated algorithms, not fundamentals.

On Monday, the main emotion was fear and the biggest fear was that an economic slowdown in China may be getting worse.

The world’s second-largest economy has experienced acurrency devaluation and a stock-market implosion in recent weeks, even as U.S. traders are trying to guess whether the Federal Reserve will raise interest rates next month. They’re also trying to sort out the effects of a sharp drop in oil prices.

That’s a lot of uncertainty all at once.

“While everybody is surprised this has happened right now, nobody should be surprised that we are seeing an increase in stock bumpiness,” said Kate Warne, investment strategist at Des Peres-based Edward Jones.

She’s telling clients to look at this market correction as an opportunity, not a threat. “Investors who are looking to add quality companies ought to take advantage of this chance to buy them at lower prices,” Warne says.

Ken Crawford, a managing director at Argent Capital Management in Clayton, expects to do just that. “We’ll be looking at those names that looked too expensive two or three weeks ago, and asking if we should pick them up for our clients,” he said.

Even amid Monday morning’s market carnage, Southern Co.agreed to buy rival utility AGL for $7.9 billion. Merger activity has been at record levels this year, and if the deal-making continues, the bull market probably will, too.

The AGL deal, Crawford said, “lends credibility to the case that the world isn’t coming to an end.”

That sort of optimism, unfortunately, was in short supply on Wall Street. Even Howard Schultz, the Starbucks chief executive, took pity on harried traders.

He reportedly sent a memo urging baristas to be sensitive to customers who “are likely to experience an increased level of anxiety and concern.”

During trading hours on Monday, he was describing almost everyone.