It's painful to watch the market slump to a more than two-year low as investors rushed to sell the Big Banks and mining stocks on earnings fears.
The S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) crashed 2.1% ahead of the market close to 4996.70 – its lowest level since July 2013.
Will the market fall to 4000 points? I don't think so and I'll explain why in a bit.
The materials sector is the worst performer with a 3.1% fall as mining heavyweights BHP Billiton Limited (ASX: BHP) crashed 4.4% to $22.80 a share and Rio Tinto Limited (ASX: RIO) took a 2.5% hit to $47.96 due to a slump in hard commodity prices.
Making matters worse is the flash PMI reading on China's manufacturing sector that fell to a six and a half year low of 47 in September and a warning by Citi to brace for more pain as the price of iron ore recorded its worst fall in a month of 1.9% to $US56.21 a tonne.
Coal miners aren't finding much love either on news that investors controlling $3.7 trillion in funds have vowed to cut coal stocks from their portfolio.
This is likely to impact on conglomerate Wesfarmers Ltd (ASX: WES), which operates coal miners, as well as New Hope Corporation Limited (ASX: NHC) and WHITEHAVEN COAL LIMITED (ASX: WHC).
But banks are not faring much better as some brokers are starting to raise doubts about the sector's ability to sustain their generous dividend payments, which have kept the stocks in investors' good books.
Westpac Banking Corp (ASX: WBC) is the biggest loser in the sector with a 3.7% fall from grace to $29.97 but Australia and New Zealand Banking Group (ASX: ANZ) is not far behind with a 3.1% fall to $26.97.
Commonwealth Bank of Australia (ASX: CBA) lost 3% to $71.60 and National Australia Bank Ltd. (ASX: NAB) is the best of the bad lot with a 2.3% drop to $29.80.
If you thought defensive stocks could provide safe harbour from today's sell-off – think again! Supermarket giant Woolworths Limited (ASX: WOW) shed 1.6% to $24.40 while telecommunications giant Telstra Corporation Ltd (ASX: TLS) lost 0.8% to $5.62.
Even healthcare stocks that benefit from the weakening Australian dollar have not been spared. Blood products maker CSL Limited (ASX: CSL) is 1.3% weaker at $89.16 while hearing implant developer Cochlear Limited (ASX: COH) is 1.1% lower at $81.81.
The indiscriminate selling is arguably the strongest sign that the sell-off is overdone. This isn't to say we can't stay below the 5000 level for a while, but I believe we will find our feet before long as the valuation on the mining and banking sectors are looking compelling even with their challenging outlook.
There's just too much bad news and no good news priced into these stocks, and investors should use the sell-off as an opportunity to buy quality blue chip stocks as I suspect the market will end higher at the end of the year.
Further, history has shown that low commodity prices actually stimulate growth (although we don't seem to be feeling much of that right now). We've actually never fallen into a recession when the oil price was low.
Global growth may be slowing, but there's still not enough bad news to suggest we will be falling into a bear market, which is defined as a decline of 20% or more from the peak.
This implies that the line in the sand for the ASX 200 is at 4,786.
