Recent Correction Brings Opportunity says Karabell

In a piece for Barron’s, Zachary Karabell, head of global strategy at Envestnet, argues that recent changes in equities markets should be seen as a normal correction that offers opportunities. He debunks the argument for a bear market with three points. First, he says, that current “global weakness . . . is insufficient to fuel a financial market meltdown,” noting that signs of recession are limited to a few developing countries, the IMF predicts growth, and fixed income markets seem to be stabilizing. Second, Karabell argues that “China . . . clearly is not imploding,” pointing to a 50% rise in Apple’s China sales over a year, among several other indicators. Third, he points to “valuation of stocks and interest rates,” observing that “prices do not exist in a vacuum” so “it is fairly impossible to conclude what the right price of equities should be.” Thus discrediting “the idea that there is a perfect multiple that tells us when to buy and when to sell,” Karabell suggests that low volatility in credit markets and other indicators suggest we are not facing catastrophic systemic weakness as in 2008.

In this “normal correction,” as Karabell describes it, there is significant opportunity. Likening the coming years to the 1970s, he maintains that “the goal in such times is to identify sound fundamentals and pick good price points that volatility inevitably provides.” Put more directly: “this is when you buy – carefully and deliberately.”