Talking Numbers

A 1% 'correction' has traders freaking out

Talking Numbers

A 1% 'correction' has traders freaking out

Now watching

Next video starts in : 7 Play

A 1% 'correction' has traders freaking out

A 1% 'correction' has traders freaking out
Replay video
Up next

This sector could be the best bet this year

This sector could be the best bet this year Up next

This sector could be the best bet this year

For a few seconds, it felt like a time warp back to 2011. A bank in Portugal ignited fears of global debt contagion, and the S&P 500 had its worst intraday decline since April 10.

Then a funny thing happened: Stocks rebounded.

But, is the bank flare-up in Europe cause for concern?

Erin Gibbs, equity chief investment officer at S&P Capital IQ, sees concerns of Portugal’s Banco Espirito Santo as an isolated incident. She notes that Portugal is a small percentage of the European Community’s economy. Portugal’s GDP is under $220 billion, roughly the size of Oregon’s.

(Watch: Here's what's happening in Portugal)

“I see this as more of a healthy pull back,” Gibbs said. “When you look at the U.S. economy we’re doing very well right now. Q2 earnings are on track for about 7½ percent growth.  The S&P may be trading a little at the top if its range – about 16 times forward earnings – but considering that earnings growth is looking so good going forward, we can still expand for several months.”

Instead, Gibbs views the recent selloff from the record top as a small correction during the summer doldrums. “I just see this as not really having an overall impact on the global economy,” she said. “I don’t see this trickling over. And, I think overall the U.S. is in good shape.”

Ari Wald, head of technical analysis at Oppenheimer & Co., also believes the S&P 500 is in good shape and that any small weakness would be a healthy pullback.

(Watch: Dow comes back from 180-pt deficit; fears 'overblown')

“You read the headlines, and you would think that the S&P 500 is already in its bear market,” said Wald. “But if you look at the charts, the index is only 1 percent off its peak. We tell our clients all the time, you are going to make a lot more money sticking to the long-term trends rather than worrying about near-term extended conditions.”

View photo

Wald said that if investors held on to S&P 500 for all of 2013, they would have done well. But, those who bought on pullbacks whenever the index fell between 4 and 6 percent of its peak would have done very well.

“If you were to get another 4 to 6 – let’s say 5 percent – from currently levels, [that] would be 1,900, which has a lot of support there,” said Wald. “I think that would be a great opportunity. I’m not calling for it; I want to stay along the S&P 500. But, if you do work back a couple percent, [that would be a] great time to buy stocks.”

To see the full discussion on the S&P 500, with Gibbs on the fundamentals and Ross on the technicals, watch the above video.

View Comments (42)