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.
“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.”
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.
- Budget, Tax & Economy
- Banco Espirito Santo