Let’s admit it, markets have taken a beating.  Around 76% of the S&P500 is in correction territory and we are in deeply oversold levels, especially in key sectors like technology.  This earning season, although not the best one we have ever seen, is still filled with great reports from diversified industries, as we’ve seen from the following examples: Verizon, McDonalds, United Technology, Johnson and Johnson, JP Morgan, United Health, Visa, Netflix, and Microsoft. Investors should be encouraged that large bellwether companies are reporting great numbers, despite all the noise mentioned above.

So what are we waiting for, and what should we plan to do as investors?

First, we think investors need to accept that this volatility may not have ended in October.  They should be prepared to have this pattern continue until the end of the mid-term elections (Nov 6th), and maybe even give it another month to see if there are any aftershocks from that.  We are looking forward to the mutual fund selling season to wind down, as it is recognized that October is a common month for these platforms to lock in profits before year end. Given all the noise in the market, it is no surprise that they have been selling in droves. We are also looking forward to the resumption of stock buybacks from companies, which should provide some support at these oversold levels.

Second, we are waiting and looking for certain bottoming signals. For example, we want to see more days where the markets close off of their lows. In other words if markets start the day down -500 points, we would like to see it close the day down only -100 points or even positive. More days like that would signal a turnaround brewing. Moreover, if we saw the market fall lower, but the VIX Index (a “fear” gauge of the market) did not make a new high then that would also be a bullish signal. We would also look to see if we test the February 2018 lows on the S&P500 of 2532. If it tests the lows and bounces back, then that would also be a positive signal.  Finally, if we heard a softer change of tone in Jerome Powell’s interest rate hiking plans, or if he simply said he would take a more data-dependent approach to rate hikes, than that would be a very positive signal for the markets.

In all – we are not sellers at these levels. As we have seen as recently as February of this year, it is rarely advantageous to sell during a period of fear. It does pay to invest with a steady hand and focus on the long term fundamentals.  Of course, any money that is needed to be spent soon, should never be invested in the markets.  Finally, we would recommend investors with some cash to touch base with their advisor.  There are plenty of stocks that have reported fantastic earnings, but have not been rewarded and instead have been dragged down with the overall market sell-off.  Begin preparing a short list of stocks to target in the coming months.  Purchases can be done gradually in stages, benefiting from dollar cost averaging.