Dear Sheryl,
It’s time for another update on the stock market’s gyrations. We’re experiencing another broad-based selloff that’s dragging down our Buy List stocks today. Small- and mid-cap stocks, as well as technology stocks, have been some of the hardest hit positions so far today. The reality is that the Russell 2000 retested its October 4 intraday lows on Friday, but that index broke to a new low today. The Nasdaq is also in new low territory. Clearly, this complicates matters, and I recorded a Special Market Podcast this afternoon to discuss the latest market action. You can listen to today’s Special Market Podcast here. As I’ll discuss, the main catalyst for today’s pullback is China and Japan. We’ve had an emerging market crisis for about 10 months now. These fears are dragging down China and Japan—and the broader market today. But what we need to remember is that this doesn’t affect our stocks. If you recall, we loaded up on Chinese stocks last year, ahead of many of these positions being added to the MSCI indices. We then unloaded these stocks after their additions to the MSCI indices at the end of June. Our main reason for selling was weakness in the Chinese yuan. Since then, we’ve been filling the Buy List with more domestic stocks. The U.S. remains an oasis. So, once the dust settles and liquidity returns, our stocks should bounce more than the broader indices. Remember, we’re in the best earnings environment in my lifetime. Third-quarter earnings have been very strong so far. A good example of this is PayPal Inc. (PYPL), which rebounded sharply last week after beating third-quarter expectations. Despite today’s volatility, the stock is continuing to climb higher. The bottom line: Don’t worry too much about today’s selloff. I apologize for these continuing gyrations, but we should not let ourselves be shook out of the market. The stock market is merely distracted by emerging market fears. And, once Wall Street refocuses on third-quarter earnings, the flight to quality will continue and our fundamentally superior stocks should bounce like “fresh tennis balls.” Again, for my complete thoughts on today’s pullback, click here to listen to our Special Market Podcast. If you encounter any technical issues with playing the recording, please contact my customer service team, and they’d be happy to get you squared away. Sincerely, Louis Navellier
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