After a staggering 11-month climb that saw the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) soar over 30%, the market has pulled back over the last month, leaving analysts and investors divided over where the market will head next.
A combination of weak domestic and Chinese economic data as well as suggestions that the US Federal Reserve would taper back on bond purchases have been partial catalysts for the setback, which has seen the market fall from 5,249 points back in May to just 4,737.7 points – a loss of 9.7%.
As such, investors are left wondering whether this is simply a case of ‘sell in May and go away’ – suggesting there are prime opportunities to buy stocks on the cheap – or whether there are further losses to come.
Just as the nation’s largest corporations, such as the big four banks, the two supermarket behemoths and Telstra (ASX: TLS) drove the massive gains on the market over the past year, investors selling them off to lock in profits have caused the recent pullback. Westpac Banking (ASX: WBC), for example, has fallen 15% in the last month whilst the nation’s largest telco, Telstra, has fallen 7.6% in the same period – partially onset by the asbestos scandal surrounding the NBN project.
According to The Australian Financial Review, an equity strategist at Credit Suisse has stated that there is still time to elapse before his firm will be looking to buy. Meanwhile, AMP Capital – a subsidiary of AMP (ASX: AMP) – is looking at now as a “great buying opportunity” of cyclical stocks, such as Myer Holdings (ASX: MYR).
Long-term investors should be focused on purchasing companies they believe are undervalued, and should not be focused on short-term market fluctuations. Whilst the views of the market are split, one thing is for certain – the market is offering a number of quality companies at heavily discounted prices. Shares in companies such as Codan (ASX: CDA) and Amcom Telecommunication (ASX: AMM), which boast fantastic management teams and outstanding future prospects, have fallen significantly recently, and investors are being offered an excellent opportunity to pick them up.
Meanwhile, The Australian Financial Review says “good quality Australian shares that have a long history of paying dividends are a real alternative to a term deposit.” Get “3 Stocks for the Great Dividend Boom” in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!
Motley Fool contributor Ryan Newman owns shares in Codan.