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'It was inevitable'
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August 21, 1998: 2:44 p.m. ET
Prudential's Wachtel says overseas woes were only the correction's excuse
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NEW YORK (CNNfn) - With the Dow down just over 10 percent from its peak, Wall Street is now officially in a correction. But at least one market analyst, Larry Wachtel of Prudential Securities, now says the pullback was "inevitable."
"We've been in a corrective phase since mid-July for the big blue chips, and we've been correcting the broad market since April," he told CNNfn's "Trading Places."
"This is all promulgated by overseas markets," he said. "We started with the festering Asian situation, Russia then spilled over into Latin America, and Wall Street has trouble dealing with all these overseas situations."
However, Wachtel said the overseas crisis wasn't the cause of Friday's Wall Street sell-off, but instead was only a catalyst pushing investors to flee a market already oversold on fundamentals.
"The event has accelerated what was inevitable," he said. "The problem was valuations. With the S&P at 25 times earnings -- and first-half earnings and projections for the third quarter slack -- the E was not keeping up with the P."
"It would have happened. It just happened quickly with the foreign situation," he added.
For all the bad news, Wachtel said, Prudential is always buying stocks that appeal, no matter what the broad indexes are doing. Friday, for example, the brokerage's buy area included various home building and consumer stocks like Armstrong World (ACK) and Whirlpool (WHR).
"But basically," he cautioned, "the trend of stocks is lower. We had 3-1/2 years on the upside, 5,000 Dow points, about $12 trillion in appreciation. Within that context, there's still some wiggle room on the downside."
As for how much downside there might be, he said he didn't see the Dow going below 8,000, but he was "watching the 8,300 area very carefully." 
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