To say the stock market isn’t looking good right now is an understatement.
Despite the bloodbath, David Kelly, chief global strategist for JP Morgan Funds, isn’t worried yet.
“There are two types of fear in the market,” Kelly told Business Insider. “The fear of the unknown — and that’s coming from China and oil and everything else — and the fear of missing out when stocks go up.
“The fear of missing out is going to be pretty strong in the coming weeks,” he said.
Kelly argues that the core economy of the US, particularly consumers, is doing just fine, and when investors realise it, that will drive stocks upward.
The current chaos, he said, is a symptom of investors giving into the fear of the unknown. Chinese economic slowdown and oil’s monumental price decline are new shocks to the market, thus investors felt the need to sell.
“There’s a lot of uncertainty in individual companies and sectors,” said Kelly. “We’ve seen this type of selling before, most recently in August, it’s not unprecedented.”
To Kelly, whether or not to sell comes down to five questions, which are (with Kelly’s answers):
- Is the downturn in oil and/or the Chinese economy enough to drag the US economy with it? No, since the US consumer and services is enough to overcome the weakness.
- Are we near or in a recession? No, employment is still gaining, and most indicators people are pointing too are technical and removed from the real picture.
- Will earnings rebound? Yes, as the effects of a stronger dollar and low oil are lapped.
- Are interest rates low? Yes, 0.25% is still historically low.
- Are valuations too high? No. He believes they’re right around to the long-term average.
The answers to the questions indicate strong fundamentals are still intact, according to Kelly. This means that, soon enough, investors are going to give in to the other fear in the market: fear of the market going up without them.
“If you get in now, you’ll still have an opportunity to make big gains,” said Kelly. “So investors are going to start realising that valuations are low right now and they don’t want to miss out when they go back up.”
In turn, as more and more people start to buy back into the market, prices will increase, and the seemingly sinking stocks will be afloat again.
In fact, Kelly told us, it doesn’t take a genius to buy now.
“I mean, buying at this point, you don’t have to be brave,” he said. “You just have to be logical.”