Panic selling has pounded stocks today, driving the Dow below 12,000 with a decline of 265 points today. The S&P 500 closed down 33 at 1,254, right above that magic 1,250 I have been waiting so patiently for! Many investors are selling just because the market is declining. While this is foolish, it is also providing an opportunity for those with cash (like my clients). We have the ADP employment report coming tomorrow, and the government employment number on Friday. That is what everyone is worried about, and could push stocks down a lot lower.
You will hear all kinds of explanations (excuses) for why the market is going down including the debt situation here and in Europe, the possibility of a double-dip recession, inflation, commodity prices, blah, blah, blah. The reality is that if stocks were fairly priced, they would not get hammered. Stock prices are inflated (or at least have been before this 100 point drop on the S&P 500), and that’s why people are selling.
I will be putting some cash to work this week, unless we rebound sharply. Investors with long-term time horizons should have a well-defined strategy and should be looking to add to positions at these more attractive prices. If they don’t, they will be kicking themselves when we rally back up.