The current stock market decline is orderly and doesn’t suggest a financial crisis is looming, DataTrek said.The research firm cited a “confluence of factors” driving the sell-off, and that’s good news.Here’s when investors should buy the dip in stocks, according to DataTrek. Loading Something is loading.
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The stock market’s current decline doesn’t indicate a financial crisis looms, according to DataTrek Research, which suggested when investor can take advantage and buy stocks.
“Today’s selloff seems to have been caused by a confluence of factors. That’s actually good news, in that there is no obvious crisis in the offing,” DataTrek Research co-founder Nicholas Colas said in a Wednesday note.
From rising interest rates, to a strengthening US dollar, soaring oil prices, and concerns about a potential government shutdown, there are plenty of reasons why the S&P 500 has declined by about 6% in September.
These factors on their own may not have been able to drive such a sharp decline, but on a cumulative basis, they had an impact.
“We are left with the explanation that their collective influence was enough to tip markets over and have them cascade lower, even if their individual influence was negligible,” Colas explained. “In one sense, this is good news. There is no crisis in the offing, just a set of troublesome market signals that should eventually wash out.”
As to when investors should take advantage of the ongoing decline and buy the dip in stocks, he recommended investors turn their attention to the stock market’s fear gauge: the VIX.
Colas wants to see the VIX jump to the 20 level, as that would represent a solid stock buying opportunity for investors.
The VIX hit a high of 19.50 on Tuesday and traded at 18.52 on Wednesday, so that potential buying opportunity appears to be relatively close.
“We continue to recommend waiting for a fatter pitch in the form of a +20 VIX before considering adding equity exposure,” he said.