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In difficult market periods, [founder] Steve Leuthold liked to distinguish between conventionally oversold markets and those that had become “Jesus Christ oversold.” Recent action clearly qualifies as the latter. There are many ways to define a “dangerously” oversold condition, but the one that always raises our antenna is now flashing extreme selling pressure that might take longer than usual to mitigate.
Even after today's ... uhh, dip in the Dow, Rob Arnott head the same position:The S&P ended Monday at 2,746; 700 points above his "bargain" level.Currently, Research Affiliates models point to 10-year returns of just above zero for U.S. large-cap equities . . . The recent decline really hasn’t changed the outlook, Arnott said in an interview. “It might boost the 10-year expected return by 0.5% or 1%,” he said. “Since we’re expecting roughly zero net of inflation, this might boost it into the half a percent range.”
Arnott notes that European and U.S. equities have been hit harder than those in China, largely because developed-market valuations have been higher. “Do I look at it as a buying opportunity?” he said. “Yes. For U.S. stocks? No.” Arnott said that he wouldn’t regard stocks as being in bargain territory until they are a quarter to a third below current levels, or at about 2,058 on the S&P 500 or below.
Arnott continues to argue that EM and EM value stocks are exceedingly cheap. While the short term is really ugly there, he thinks of them as being powerfully positioned for 5-10 year returns.