Newspaper article St Louis Post-Dispatch (MO)

Gallagher: Is the Stock Market Slump over Yet?

Newspaper article St Louis Post-Dispatch (MO)

Gallagher: Is the Stock Market Slump over Yet?

Article excerpt

Is it over yet?

That's what investors are wondering in the midst of the second nasty stock slump in the past five months.

The S&P 500 index of big company stocks finished the week up 1 percent, thanks to a nice rally on Thursday and Friday. But it's off 6.7 percent this month, and 11 percent short of its high of last May.

Meanwhile, the bear is chewing on investors in small company stocks. The Russell 2000 small-cap index is off 21 percent from its high of last June. A 20 percent drop defines a bear market.

Thursday and Friday were lovely, but it's too early to call an end to this month's slump, analysts say. Market pros are looking for "capitulation." That's the big volume of panicky selling that often marks the bottom. It means that all the skittish investors have scrammed.

We've seen rising volume, volatility and some panic selling, but not the blowout that marks a true throw-in-the-towel moment, wrote Scott Wren, global equity strategist at Wells Fargo Investment Institute in a note to investors Thursday.

But it's coming. "To us, this feels like we are in a capitulation phase. And capitulation frequently creates opportunity," he said.

Don't buy yet, says Juli Niemann, analyst at Smith Moore and Company in Clayton. Wait for "the purge," when high volume suddenly drops, signaling the panic is over.

That may take, "some time," says Scott Colbert, chief economist at Commerce Bank in Clayton.

Mario Draghi, who heads the European Central Bank, soothed the markets last week by hinting that the bank may ease monetary policy soon. But Colbert thinks stocks will stay sickly until oil stabilizes, and the Fed indicates that it will go slower in raising interest rates. There's been little hinting from the Fed so far. Oil hit a dozen-year low of $27 this week, and closed Friday at $32.

Colbert expects a "deep correction," with stocks down 14 percent or so from their highs. But, with the American economy growing, we're not due for a true bear market.

Any column on stock investing should come with a warning. No one knows what stocks will do. Emotion can defeat reason. Very smart people are paid to predict, but they can be wrong. …

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