The Danger, and the Opportunity, in Today's Market Selloff

The selloff in U.S. stocks Monday aligns with normal market corrections and could have been worse, experts suggested, noting ongoing opportunities for investors.

That’s not to say the slide isn’t serious and that danger doesn’t lurk in the economy, however.

“The selloff right now is real. We’re living through the third-highest VIX (volatility index) spike ever,” behind highs reached only during the global financial crisis and COVID-19, Michael Batnick, Ritholtz Wealth Management managing partner, wrote in a blog post.

“It’s okay to feel anxious about all this, but giving in to fear is never a good strategy,” he added. “Now is always a good time to have perspective. This selloff, while strong and painful, is a normal part of investing.”

In 94% of the years from 1928 through 2023, the S&P 500 has had at least a 5% drawdown, acoording to a chart Batnick included in his post. And even after Monday’s drop, the index remains up for the year, he noted.

Early in the afternoon, the S&P 500 index was up 10% year to date. For the day, however, the S&P, Nasdaq and Dow Jones Industrial Average each were down more than 2%.

“Allow me to offer a positive outlook on what looks to be a very ugly day,” Batnick said. “This is an unwind: margin calls, leverage, selling everything, etc. I would much rather have this type of selloff than one that’s caused by earnings tanking and a re-rating in stock market multiples.”

Peter Mallouk, Creative Planning CEO, similarly noted Monday that stock selloffs aren’t unusual.

“Market corrections are normal and happen nearly every year. A minority of corrections turn into bear markets. All 100+ such events have given way to a recovery and new market highs,” he said in a post on X, formerly Twitter.

Late Sunday, as Japan’s Nikkei Stock Average dropped 12.4% — it endured its worst slide since 1987 — Mallouk posted: “Buckle up for what could be a rough week. … Volatility is the price stock market investors pay to outperform over the long run.”

In an email response Monday to ThinkAdvisor, Mallouk said: “There are a confluence of factors that have created this downside move, from Japan contagion to higher unemployment than expected to lower earnings than expected. I never believe in making predictions over a period of quarters, but am confident that investors that stick with a long-term approach will see opportunity present itself between now and year end.”

Economist and investment advisor A. Gary Shilling told ThinkAdvisor via email Monday: “I believe that the stock and bond market foretell a recession.”

Russel Kinnel, Morningstar research manager and ratings director, wrote shortly after the U.S. market open that “it was a tough morning, but hardly a rout.”