3 reasons not to bail on stocks

'Now is not the time for investors to head to the exit,' write analysts at UBS. Others joined in.

By MSN Money Partner Aug 4, 2014 4:06PM
Image: Stock investor © Tom Grill/CorbisBy Barbara Kollmeyer, MarketWatch

That recent stock take-down, where the Standard & Poor's 500 Index ($INX) delivered its worst weekly performance in two years, undoubtedly sent a chill down many an investor's spine.


But strategists were coming out of the woodwork on Monday to say, "Chill out, people."


First up, Mark Haefele, global chief investment officer, and Kiran Ganesh, cross-asset strategist, at UBS Wealth Management:

"With U.S. GDP growth still on track, the Fed remaining accommodative and cash still on the sidelines, now is not the time for investors to head to the exit."

Here's a breakdown of their rationale in a commentary on CNBC's website:

  • Valuations are not at extremes. Sure, valuations of risky assets aren't cheap, but high-yield bond spreads are far from the lows of 2.5 percentage points seen in 2007 (spreads between high-yield bonds and Treasury yields are 3.77 percentage points). And while stock-market valuations are trading slightly above historic averages, there’s no historic evidence those levels are stressed.
  • Investors aren't exuberant. Sure, Federal Reserve Chairwoman Yellen brought back some vivid memories with her warning about "substantially stretched" areas. However, many have forgotten that markets rose for more than three years after that other Fed chief, Alan Greenspan, spoke of "irrational exuberance." Bottom line: Unless comments come with policy changes, they really don’t affect the outlook for markets. Right now, Yellen is focusing on the slow recovery in the U.S. employment rate, which means she’ll likely keep monetary policy loose rather than jeopardize job creation. UBS strategists expect real interest rates to stay negative for around two years.
  • Money is on the sidelines. Lots of investor dollars are sitting in cash at negative real rates, waiting to move back into riskier assets with higher potential returns. At UBS Wealth Management, just under 30 percent of assets are invested. The biggest concern of clients is market valuations and the sluggish pace of the economy since 2009. There's no talk of "this time is different" or a "new economy," which takes us back to reason No. 2.

Of course, Haefele and Ganesh concede that investors should expect that returns will be lower for both equities and high-yield credit, given the run-up that's been seen in the past five years.


Their advice is echoed in Monday’s Need to Know column on MarketWatch, which talks about how investors scared off by last week's action are just laying down the red carpet of opportunity for others.


Also heard on the "don't panic" front was Dennis Gartman. The editor and publisher of The Gartman Letter told CNBC on Monday that he's returning to a bullish stance on stocks after the market "got a bit ahead of itself." He doesn’t see the S&P 500 dipping under 1,860 in the near term, and would be a buyer at around 1,875.


Last word goes to Craig Erlam, market analyst at Alpari U.K.:

"Given the significant increase in the number warnings related to the stock markets as of late, this worry of a larger correction every time we see a bad week is hardly surprising. However, if you look back at the last two times that we've had poor weeks, the markets have bounced back pretty quickly so all this worry may be short-lived."

Here's Erlam's chart:



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70Comments
Aug 4, 2014 4:34PM
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Right! Ya put yer money in when we tell ya, ya take yer money out when we tell ya! Trust us!
Aug 4, 2014 5:55PM
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The Big Boys want you to stay in. When the market dumps a few hundred, they are relying on your money to become their money.
Aug 4, 2014 5:11PM
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All three points made by the author are accurate.  This does not guarantee that the market will go up, however.  Long run stocks are the best available investment, short run is always a craps shoot.  Invest smart and diversify and you will win in the long run.
Aug 4, 2014 8:32PM
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Everyone knows the government sponsered stock markets are totally rigged. When Yellen decides to take it to 20,000, she'll do it. But without the fed, dow is back to 6000 and would have trouble holding that level. The government thinks if they keep the stock prices high, that America is still as great as it used to be. But it wasn't a phony, propped up stock market that made the past USA great.  It's like celebrating a guy who graduated with straight A's, when he paid his instructors to fill all A's in his grade cards.
Aug 4, 2014 7:51PM
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When they tell you STAY in the stock, THAT'S the time to BAIL OUT.

This market is based on NOTHING but the fed PUMPING in fiat money, and NOT a booming economy. The inflation of the money supply is ALREADY causing inflation that is AT LEAST DOUBLE what the government says it is. A lot of people keep telling you to get your money OUT of Wall Street, but if you choose to believe the government and its bought and paid for economistS, then you will LOSE and lose BIG!!

Aug 4, 2014 5:45PM
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We can no longer afford to "make up" returns to keep people in the markets. The strategy failed. It's time to dis-incorporate these losers and develop real enterprise again, not new i-phones and anti enterprises like Amazon. We used to make money the old-fashioned way-- we worked for it and got paid for competence, not degrees and text speeds. 
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"Money is on the sidelines."

 

Seems I've been hearing this for the last decade.

Aug 4, 2014 10:02PM
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You cowards should stay out of the stock market.  Let the rest of us take the risk and get rich.
Aug 4, 2014 11:10PM
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We're still looking at incredibly weak volume - only a fool would attempt to identify "trends" under these circumstances...

It would be great if we could have some technical levels with a solid foundation.  Unfortunately, we need a huge correction to get there from here.  It sounds ridiculously insane and scary, but I've still got 1270 on the S&P as the last real solid support level.  

As of now, it appears we've tried to build the world's tallest skyscraper on top of the backyard shed.
Aug 5, 2014 8:00AM
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Well, Barbara, it sure looks scary. That's three very good points, but I can think of several pretty bad points. I'm gonna stay put, I'm about 1/3 in cash, 1/3 in equities and 1/3 in precious metals.


Trees don't grow to the sky. We have the most inept Government I've seen in my lifetime. Government Statistics cannot be relied upon: Unemployment rages, too many people have to accept low paying jobs, and the weasels distort the Unemployment numbers. The Cost of living stats are just another distorted lie.


I'm sticking with Food, Energy, Water, Guns, Gold as investments. I'm in sell mode, but constantly watching for some place nice to park some cash.  

Aug 5, 2014 10:46AM
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Market timing is as much gambling as betting on a horse.
Aug 5, 2014 9:46AM
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No one ever knows when its time to get in or out.  Just because someone is "in the business"  doesn't mean they can pick timing any better than the next guy.  Do what's right for you,  if you can't afford to lose it you shouldn't be in the market.  Period.


If you've got a ten year horizon, things get safer as the odds of the market being up at some point during that ten years is pretty good.  The odds of you getting out at exactly that time are iffy though.  Two things are for sure, the boomers that have all the money in the market will be cashing out soon and the fed will raise rates someday.  There's still a big dip a comin! 

Aug 5, 2014 7:50AM
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"The market timers' hall of fame is an empty room."
Aug 5, 2014 10:46AM
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And the analysts were telling you to buy Enron right up until the implosion - keep drinking the kool aid.  Think of this market as a mindless herd of cattle being driven in one direction by a relative few "herders".  The mindless herd will continue to go in that one direction until they are "spooked" at which time they become an unstoppable force in the opposite direction.  In human behavior terms greed is an almost unstoppable emotion...that is until it is trumped by fear.  Both irrational behaviors and are in play right now.  Those who are heavily invested in the market - put your seat belt and crash helmut on because you are about to witness a great evaporation of wealth - possibly one of the greatest in modern market history. 
Aug 5, 2014 9:06AM
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Dump the stock market it's a legal PONZI SCHEME.
Aug 5, 2014 8:51AM
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33 minutes agojdmeck
"7trillion  to 10trillion  in almost 7 years is not that bad. They at least have some real assets as apposed to the government debt."

Well you might actually mean the top 1% have something to show for it as they are ones that have reaped the vast majority of the Rewards concerning both Stock Market Gains and Government expenditures.

Concerning real assets to show for it, where since most of that Corporate Debt is due to massive Stock buybacks and dividends. Cap X spending is way DOWN by comparison. It would be nice if Corporations cared as much about their Workers as they do about just padding the pockets of overrated and overpaid CEO types. Most of whom aren't' even the original founders.
Aug 5, 2014 11:41AM
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What if. What if you don't have ANY money in stocks ? I gained money through the 2007-2010 period by NOT owning any stock. Hard assets my friends. Oh, and by the way become debt free.
Aug 4, 2014 5:47PM
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Current global indebtedness exceeds $1 Quadrillion. Nearly all of it are financial activities through the exchanges, central banks and big loser business platforms. The smallest percentage involves actually building economy or helping ordinary people. 
Aug 5, 2014 1:24PM
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Lot of institutional investor hype to stay in the market.

I am largely getting out on that advice.

And yes, I really am doing that- 80% cash, 20% stocks.

Aug 5, 2014 12:13AM
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To post regularly on these Comments blogs and bear the blunt of manipulative thumbs that are deployed to hide the truth is ridiculous. We are failing, America. It will hurt all of us. To be part of the group that doesn't want negative perspectives to prevail is futile. They do. Better to face reality with eyes open. You will lose everything. Then what? The what is life. Try it.  
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