Stocks are bouncing back in early trading Tuesday as the market catches a bid after suffering its worst day since October 2008 and, at down 6.66%, the S&P's 12th-worst single-day performance since World War II.
"Investors remain very much on edge," says Dan Greenhaus, chief global strategist at BTIG. "They aren't' really sure what's happening economically; they aren't really sure what's happening fundamentally."
Greenhaus says the shift in the market - and market sentiment - began earlier this month after first-quarter GDP was revised down from 1.8% to 0.4%. Add to that the debt ceiling debacle, the S&P downgrade and Europe's implosion and you've got the makings of a crisis. What's adding to the worry is the concern the federal government can't bailout the private sector again this time; that, Greenhaus says, explains the ferocity of the decline in the past 12 trading days.
All eyes will be on the The Federal Reserve's ROMC announcement today at 2:15 p.m. EDT. Though most don't expect the Fed to take any action, the recent declines may change their view. Greenhaus argues there's a danger in the Fed reacting too strongly to the fluctuations in the equity market.
"They have be to be very careful to look like they're not responding to a decline in the stock market such that it reinforces the idea that the idea is here in perpetuity to prop up equity prices," he says.
Amid all the negativity in Washington and Wall Street, Greenhaus says there are a few reasons to be bullish, most notably valuations: Assuming earnings of about $102 over the next four quarters, the S&P 500 is trading closer to 11x earnings than 12x earnings, he noted in an email to clients Monday evening.
Furthermore, if we manage to stay out of recession -as he believes we will - history suggests a market rebound is in order.
That's a huge "if" but given the dramatic drop in recent days now may be as good a time as any to buy stocks. "To the extent that we are not going into recession, history is fairly clear to quite clear: buying at current levels given the speed and rapidity of the decline, investors are likely to be rewarded," he says.
That's true this morning. Time will tell if it's the right call in the long-term.