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Time to buy into quality
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October 28, 1997: 8:45 p.m. ET
Sinai and Manley counsel shopping for fundamentals; warn against Asia
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NEW YORK (CNNfn) - After the wave of massive selling that struck world markets Monday, the stock recovery on Tuesday seems even more remarkable. But is the worst of the turmoil behind the markets, or is this the first of many chaotic weeks of trading?
To offer some insight, Lou Dobbs, CNNfn anchor, spoke to Allen Sinai, chief global economist at Primark Decision Economics, and John Manley, stock strategist at Smith Barney. Excerpts of their remarks on CNNfn's "Street Sweep" follow:
DOBBS: An outstanding day, a day that I don't think any of us even at our most optimistic at this time yesterday could have forecast with any comfort. Let me ask you: What happened today to turn this market around?
MANLEY: I think the bond market helped. I mean the bond market got to a 6.1 yield and that showed that it was willing to move as rapidly against potential deflation in the future as it has moved against potential inflation in the past three years. It's been a marvelous leveler. It's kept us really on the straight and narrow.
And I think people were looking at this point to see if a lot of good names were down an awful lot, but didn't seem to be falling apart. And I think just the sheer momentum sort of finally wore itself out.
Also, yesterday [Monday] afternoon I think was probably exacerbated by what was going on with the circuit breakers that went off. That probably made it a little bit worse yesterday than better.
DOBBS: Allen, your take?
SINAI: Lou, I think we simply had a full-fledged correction which we were overdue for and at 7,100 . . . 7,000 . . . below 7,000, it's bargain time. Those are bargain basement prices. It's almost 15 percent down. That's a good-sized correction which was justified.
DOBBS: Investors around the world are also breathing a sigh of relief. We saw the recovery today in the Latin American markets and we've described this as being over. Is this the end of this correction? Can it be really this short, this swift and certain?
SINAI: Let me start with where the trouble really lies … Asia. … Their earnings don't look the same today going out a year as they looked before, given the trouble in Asia. For the U.S., for North America, fundamentally, we're in very good shape. A bear market is not justified here, so when you get down to the levels we saw, it really is buy time.
MANLEY: I think that's probably true. I think the U.S. economy still doing very well and again, I'll get back to interest rates. I've gone back and looked at this and having gone back to the '29 crash, I haven't found any bear market in the United States that started or kept on going with interest rates falling.
DOBBS: Yes, and of course in '87, short term rates were rising as well as oil prices and a number of factors that, fortunately, we don't have at work here today. Now as I said, investors are breathing a sign of relief. Is this it? Is this the blow-off that settles matters? We've had our 10 percent correction and now the party resumes. What happens from here?
MANLEY: Well I don't think the party will resume because the world is different today because everybody knows it. Asia is in trouble and we have lots of companies that do business there. So I don't think we can march back to old highs all that easily. For the U.S., I do think the correction is essentially over. Almost 15 percent is really a good-sized correction in a healthy bull market.
This is a healthy bull market. This U.S. economy remains in terrific shape and in a way, if we get some slower growth next year -- as we will off some weakness in exports into Asia -- it's going to make the Fed's job easier and make higher interest rates less likely. It's actually going to extend this whole process.
SINAI: I think it's over for several months. I think there are some real problems in Asia and eventually they affect U.S profits. Growth in U.S. profits has been slowing for some time, but I don't think it's an imminent problem. As you said, I think this is the fourth 10 percent correction we've seen in as many years. After the last three, the slower you were to buy, the dumber you were. But as news of this goes around the world, we're not going to draw in more buyers.
DOBBS: Give us, if you will, your counsel to those people watching and listening to you gentlemen. What should they do now? How do they approach this market. How should they be investing their money?
MANLEY: Look for companies that are down. Look for companies that are good values at this point in time, given their fundamentals, and buy them.
SINAI: As investors go back in, they should begin to commit some more money back into the equity market because their trend is up. They should be a little more selective about how they do that.
DOBBS: John Manley, Allen Sinai, thank you both for being here. I appreciate your views. 
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