All major U.S. stock indices are trading in the red. So now what?
Chris Whalen of Whalen Global Advisors and Carter Worth, head of technical analysis at Cornerstone Macro.
Whalen: Price Discovery Process
Central banks are no longer going to act as the primary buyer of both bonds and stocks, Whalen said Tuesday on CNBC’s “Worldwide Exchange.” As it stands now, central banks own approximately one-third of all securities and since many central banks are shifting their policies, the market is going trough a “price discovery process.”
Investors considering putting cash to use may want to take a closer looker at regional banks, he said. At a time when the Federal Reserve is restricting a bank like Wells Fargo & Co WFC from growing, a regional bank the size of PNC Financial PNC is “allowed to grow” and “allowed to acquire.”
“As an investor you are going to get opportunities to buy high quality names that were [trading at] two times book or more a couple of weeks ago,” Whalen said. “And that to me is the opportunity here.”
Macro: Wisdom In Price
The market sell-off isn’t based on any fundamental factors, Worth said during CNBC’s “Squawk Box.” Prior to the sell-off, the main thesis to support stock market growth was based on higher interest rates, an improved economy, banks, and strong earnings.
“Exactly that happened,” he said. “And the whole thing fell apart. It has nothing to do with the fundamentals day to day.”
Taking a historical look at all instances when the market has dropped 5 percent or more reveals 217 separate occasions, Worth said. A move like this happens on average every three months, so the current pullback defies history as a 5 percent pullback hasn’t been seen within the past two years.
Of the 217 instances of a 5 percent drop, the median decline before a rebound started is 8 percent and the average decline is 12 percent, Worth said. As of midnight Tuesday the futures market were down 12 percent, which implies the “no emotion” math dictates the sell-off may have come to an end. However, as is always the case, “anything is possible” and the markets can follow 1987’s lead and lose another 20 percent.
It’s important to consider that at the end of the day, the stock market merely “gave up” a little more than January’s gains.