Stocks Decline Sharply, But Is Now The Time To Buy?

U.S. stock markets were thrown into turmoil Monday morning, when the Dow Jones Industrial Average fell by over 1,000 points at the opening bell, yet some analysts are predicting a sharp bounce, asserting that now is the time to buy equities.

The markets declined immediately following Monday’s opening, extending the selloff that began last week. As NBC News points out, the last week’s decline represents the worst for equities markets in over four years, prompted largely by fears over Chinese stocks. Two weeks ago, China devalued its currency, raising concerns among investors that one of the world’s largest economies may not be as healthy as was believed.

Despite Monday morning’s rout, a wide array of analysts were almost immediately predicting a bounce in stocks, saying that this week might represent a unique buying environment, at least for certain issues. Tony Dwyer, Canaccord Genuity’s chief U.S. strategist, revealed in a Monday morning note that “key indicators” have reached levels where investors should consider buying.

“With such pronounced weakness underneath the widely followed indices, we believe much of the global economic and Fed-related uncertainty is largely priced into the average stock, and now even the closely watched indices.”

Dwyer cited four indicators that signal an opportunity to take a bullish position on stocks, including a rise in the the CBOE Volatility Index and a lower number of S&P 500 stocks above their individual short-term moving averages. Jonathan Golub, RBC’s chief U.S. market strategist, cited a lack of a catalyst behind last week’s decline as a signal that investors might want to consider purchasing stocks, as CNBC points out.

“2Q corporate results have broadly surprised to the upside and signs of global financial distress remain well-contained. History shows that buying stocks following a spike in volatility in the absence of a well-defined catalyst is a winning strategy.”

Despite a deluge of panic Monday morning, economist Justin Wolfers managed to put the markets’ decline in perspective. As Vox pointed out, he tweeted a 10-year-chart that highlighted the fact that the current downturn pales in comparison to the gains made in stocks over the last decade, or even the last five years.

With analysts expressing a bullish outlook in the near-term, investors may want to be careful about selling off any of their holdings. In the long-term, the markets have shown robust growth, meaning investors may want to consider the current decline a unique opportunity to buy stocks or increase their positions.

[Photo by Spencer Platt / Getty Images]