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Wall Street investors buckle up for more turbulence

"The economy is not heading towards recession. Earnings growth will remain decent and valuations are good. The sky is not falling."

Dick Green, Briefing.com analyst

Investors are girding for more turbulence after a grim week on Wall Street and other global markets, as analysts debate whether the slide was a normal "correction" or the start of a broader downturn.

The Dow Jones Industrial Average of 30 blue chips skidded 4.2 percent for the week to close Friday at 12,114.10, in its worst week since March 2003. The Standard & Poor's 500 index tumbled 4.4 percent on the week to 1,387.17.

The technology-heavy NASDAQ composite index plummeted 5.8 percent over the week to 2,368.00.

There were few places to hide for investors after the market rout that began in Shanghai on Tuesday and spread around the globe.

Analysts attributed the plunge to worries about the end of the investment bubble in China, fears about a US economic slowdown and a rising yen that could crimp the "carry trade" in which hedge funds and others borrow at low rates in Japan for investment elsewhere.

But a key question is whether the selloffs were part of a healthy "correction" that takes speculative fervor out of the market or the beginning of a bear market in response to growing economic worries.

John Praveen, chief investment strategist at Prudential International Investments Advisers, said he remains upbeat despite the dismal week.

The selloff in global equity markets "was a healthy, overdue correction and we remain positive on the outlook for stocks," he said in a note to clients.

"We expect equity markets to recover from the `China correction' ... The fundamentals remain favorable for stocks. The macro backdrop is equity-friendly with sustainable global growth, benign inflation, lower oil prices and stable interest rates. Equity valuations are still attractive," Praveen said.

Dick Green, analyst at the research firm Briefing.com, said market momentum has turned negative after months of hefty gains, but that the fundamental picture is unchanged.

"Suddenly, the market is overly bearish. Just two weeks ago, the market was overly bullish," he said, while reaffiming his own "moderately bullish" outlook.

"The pessimism has become too pervasive. The economy is not heading towards recession. Earnings growth will remain decent and valuations are good. The sky is not falling," Green said.

Others say they remain cautious until they get a better view of the economic picture and whether market sentiment will stabilize.

Bonds rallied as investors looked for a safe haven from the turmoil. The yield on the 10-year Treasury bond fell to 4.515 percent from 4.678 percent a week earlier and the 30-year bond yield fell to 4.650 percent from 4.782 percent. Bond yields and prices move in opposite directions.
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