Markets got taken out to the woodshed yesterday, falling more than 2% apparently driven by election results, fiscal cliff worries, and the realization that Europe remains terrible. As the bull market of early 2012 becomes a distant memory, investors need to decide if this is a chance to get in or evidence of a long, cold winter for markets.
Of the Triple Crown of perceived negatives, Brian Sozzi, chief equities analyst at NBG Productions, says everybody's who's been claiming the worst case scenarios are priced into stocks is wrong, particularly about the fiscal cliff. Yesterday was just a "taste of what could happen if we don't get together and the fix the situation."
With or without our self-inflicted fiscal problems, European weakness is going to continue to weigh on earnings in Q4 and into 2013. The second quarter was already worse than the first quarter and the reports still coming in for Q3 are as bad relative to expectations as anything seen since the end of the financial crisis.
Investors love to claim to be forward looking but when the here and now is constantly getting worse it gets hard to buy now in hopes that things will eventually improve.
For sectors Sozzi thinks there's still time to bail on the high-end consumer plays, Ralph Lauren (RL) in particular. The Polo company says Europe is getting better; a view Sozzi has a hard time reconciling with every EU official extant announcing exactly the opposite.
Out of everything that's been pummeled this week Sozzi is hunting for bargains exclusively in housing stocks (XHB). "What is not justified is what we saw in the homebuilders," he claims. Whatever the other data shows, home prices, inventory and sales data are all improving, albeit in a sluggish way.
Not every dip is made to buy, even those as extreme as yesterday's. Given a choice between getting long or short Sozzi picks the latter. The market doesn't give points for being a hero. As anyone on the East Coast during the last week will tell you, sometimes it's best just to hang out until the storm clouds have passed.
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