Stock sell-off a buying opportunity as some pros see more gains ahead

The big numbers notwithstanding, market watchers are calling Thursday’s sudden stock market slide a normal, with some suggesting the drop is a buying opportunity.
A 1.3% decline in midday trading by the major market indexes needs to be kept in perspective, according to Joseph Witthohn, portfolio manager at Emerald Asset Management, who described the 220-point drop by the Dow Jones Industrial Average as a “yawn.”
“While the size of the number looks frightening, a drop of just over 1% in the face of decent economic news should not be a cause for worry,” he added. “We had 17 declines of 1% last year, and it happened 21 times the year before.”
Beyond the realities of a six-year bull market run and the valuation levels that come with it, seasonality is being singled out as a likely culprit for Thursday’s market dip, which happened to coincide with some disappointing durable-goods data.
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“Historically, September has been the worst month of the year for stocks,” said Eugene Peroni, senior vice president of equity research at Advisors Asset Management.
“Today’s decline is certainly shaking up some of the complacency in the market, and it’s getting into the oversold territory,” he added. “But this is not the 10% pullback that everybody has been talking about.”
With the Dow dipping below the 17,000 mark just after 12:30 p.m. ET, Mr. Peroni pointed out the psychological significance of the decline. But added that the index could still fall to the 16,700 range and still not be a major concern from a market valuation perspective.
“This doesn’t seem like a momentum slide,” he said. “But you have to allow for the fact that there could be a few hundred more points of downside on the Dow.”
Quincy Krosby, a market strategist at Prudential Financial Inc., also cited seasonality as a possible driver of the stock market slide.
“I think this is just investors coming back from the summer and redoing their books,” she said. “The market always needs some kind of catalyst.”
Geopolitical considerations, which typically have been shrugged off by Wall Street, might be becoming a bigger factor for the markets, according to Douglas Coté, chief investment strategist at Voya Financial Inc.
“Up until now, the geopolitical risks have been correctly overlooked by the markets because they tend to come and go quickly, but now it looks like those risks are sustained longer than the market has anticipated,” he said in a reference to President Barack Obama’s recent authorization of bombing in Syria.
“I would hardly call this a big market move,” he added. “I think the market has gotten complacent on what true volatility looks like. The fact is, we’re moving toward a normalization of interest rates and we’re heading back toward a normalization of volatility.”
For Mark Travis, manager of the Intrepid Capital Fund (ICMBX), the pullback is a potential buying opportunity.
“I’ve got cash in the high 20% range and I might be putting some of that cash to work today,” he said. “I’m much more interested in a day like today then what we’ve been dealing with.”
Mr. Travis said he is not surprised by such a sudden market move because he believes the markets are starting to diverge to the point where a select few stronger stocks are carrying the market.
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“Over the last three months, high-yield bonds were down 66 basis points, while big multinational stocks were up 3%, and the Russell 2000 is down 4% year-to-date,” he said. “You’ve got a few really big mega caps, like Apple (AAPL), that have pulled along the index and are papering over the damage below the surface.”
Combine that with the fact that most investors are fully in the markets and, Mr. Travis said: “It doesn’t take a lot of selling to move the market.”