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Nuveen's Doll: Investors Found 'Convenient Excuse' to Sell Equities

By Michelle Smith   |   Tuesday, 04 Feb 2014 12:57 PM

Last month's sharp sell-off in U.S. equities was caused by emerging market turmoil, but the effect is only temporary, says Bob Doll, chief equity strategist at Nuveen Asset Management.

Investors were likely spooked by political turmoil in Turkey and Thailand, the rapid devaluation in Argentina and fears of a hard landing in China, Doll explained in a market note.

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When you add investors' uneasiness about their huge gains in 2013 and the emerging market currency crisis, it seems they found a “convenient excuse” to sell equities, he added.

But so far, there's no evidence suggesting U.S. credit markets or financial conditions will be negatively impacted by emerging market disturbances, Doll notes.

Financial signals do not indicate that the current shock will mushroom beyond a bull market correction, he adds, citing expectations that developed nations should be able to weather the storm.

Last month's sell-off was followed by a miserable Monday, which marked the worst February start for the Dow Jones Industrial Average since 1982. The S&P 500 hasn't started February so poorly since 1933, notes CNBC.

But Doll isn't quick to assume that January's market performance is a negative indicator for the year.

Over the past 86 years, the S&P 500 declined 31 times, he explains. But the market only continued to decline throughout the year 14 times. So historically, it's less likely January declines will translate into a year of deterioration, he says.

Doll doesn't have a positive outlook for “main government bond markets,”and he believes it will take time for sentiment toward emerging market equities to recover.

But overall, Doll notes the correction is likely to prove temporary in terms of the uptrend in performance of stocks versus bonds, and his firm suggests investors evaluate gradually adding to equity positions.

Like Doll, others believe the current weakness is a mere pullback.

“In the short-term, everybody who is the least bit short is coming out of the woodwork that the end is here,” Richard Bernstein, CEO of a firm that bears his name, told CNBC.

“But the question is, are fundamentals going to be better or worse one year from today? I think in the United States the answer is it's going to be better, which argues that the stock market should be higher one year from today,” he said.

Dennis Gartman, editor and publisher of the Gartman Letter, told Fast Money he's not willing to say this is a bear market because trend lines need to be broken to make that assertion.

“I just think you're going to have a very severe, very substantive and really quite ugly correction that will probably make a lot of people wail and gnash their teeth before it's done,” Gartman projected.

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