Buying Opportunities in This Market Environment

“Is this it? Is this it?” You could almost hear the whispers all the way down on Wall Street. Was Wednesday’s downward draft of nearly 500 points on the Dow the capitulation market watchers had been waiting for, calling for, over the last five years of the bull market?

The answer, as traders heard the closing bell clang at 4 p.m. ET, was a resounding “NO.” We had closed well off the session lows, and the Russell 2000 small caps, which lately have resembled the Little Index That Couldn’t, actually closed in the green. That didn’t make the stomach-churning moves investors endured all day Wednesday any easier to digest.

The drama began shortly after the opening bell. Overnight, news was released that a second health care worker who had treated the Texas Ebola patient had contracted the disease. Markets hate surprises, especially like that, and when European stocks opened, they suffered their biggest one-day slide since 2011.By the time U.S. markets began the trading session, the market was primed to become red-meat for the bears.

Within minutes, the Dow plunged more than 250, then 350 points. It was swift and ugly. It didn’t help that monthly retail sales data missed expectations.

Suddenly, people were questioning whether the stocks they were dying to buy just a month ago were even worth a purchase even at a reduced price. The logical answer is of course they’re worth it, but the market is anything but logical in times of stress.

As I watched from my office, I felt like I was watching a mini-flash crash. I had been anchoring on May 6th of 2010 when the markets suffered what has come to be known as The Flash Crash. Already on edge over the Greek debt crisis, the Dow, which was down 300 points, dropped another 600 within a span of five minutes. Twenty minutes later, the Dow regained nearly all of those 600 points, but not before terrorizing investors and traders alike.

Wednesday felt like a mini version of that because it happened swiftly and then recovered much of what had been lost. But the question remains, what would be so bad if the markets hadn’t come back?

The answer is nothing. I spoke to many money managers who said the move would be ‘normal’ and even ‘healthy.’ We’re coming off a five-year bull run with barely even a vague correction (defined by a 10 percent pullback off recent highs). What happened in Europe this week didn’t feel ‘healthy.’ When the STOXX 600, one of the widely followed indexes in Europe, has $255 billion in market cap chopped in one single day, it hurts. $255 billion is more than Portugal’s GDP. But for U.S. equities, the move was definitely not devastating. At one point today, the Nasdaq was down 111 points but ended the session down just 11 points. Why?

Fund of funds manager Anthony Scaramucci of Skybridge Capital told me, “If you believe the U.S. economy is generally intact, then it’s an unbelievable time to buy.” Buy what, Anthony? “Pay-me-now stocks. Stocks that pay out significant dividends while you wait for the economy to truly rebound. REITS (Real-estate investment trusts) and MLP’s (Master Limited Partnerships) pay out strong dividends and are worth a closer look.”

But strength to move in the opposite direction of a stampede takes fortitude and courage, something the herd loses pretty quickly depending on the circumstances. A stunning move in the bond market today underscored the alacrity with which fear can grip market psychology. At one point Wednesday, the 10 year yield got down to 1.86%, the first time it’s touched that level in 16 months. It’s a classic sign of a panicked flight to quality, but some might argue there isn’t much quality to such low returns.

There *is* quality, however, when you scrutinize companies both here in the U.S. for solid management, a great product or service and demand for that product or service. I can remember March 9th, 2009 when nearly every S&P 500 stock was swooning and Starbucks fell to $8 a share. I turned to my co-anchor and said, “It may be closing stores right and left and right now a lot of people can’t afford the $5 latte but this is a great company that’s not going away.”

Today, five-and-a-half years later, Starbucks closed at $72.38. Find the Starbucks of the world, invest for the long term and hold on tight for the ride.

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