Friday's wild selloff in stocks, which many analysts saw as an overreaction, could set up a perfect opportunity for investors to go bargain hunting.
The frantic $11-a-barrel run-up in oil pricesand a 22-year high in the monthly gain in unemploymentsparked yet another round of panic-selling, a trend market pros say will continue until people stop getting rattled by every bit of bad news that comes along. (See correction below).
"It's the classic knee-jerk overreaction," Diane de Vries Ashley, managing partner of Zenith Capital Partners, said of Friday's market implosion. "I admire the concept of a thoughtful and logical market, I just don't think it exists."
The unemployment report set the stage for the sell-off.
Nevermind that the total number of job cuts in Maywas less than Wall Street had anticipated. Traders instead focused on the sharp rise in the unemployment rate, from 5.1 percent to 5.5 percent. They took that as a sign that the economy was weakening, even though economists said the rise was attributable mostly to more unemployed people trying to get back in the jobs market and college and high school students looking for summer work.
Then there was oil.
Crude prices surged past $138, a phenomenon largely seen as speculator-influenced even though the supply-demand equation undeniably is a significant factor in the overall energy picture.
Still, it all added up to a wild close to a manic week in which the market scored its biggest single-day gain in two months on Thursday, then followed with Friday's unrelenting drop, in which the major indexes each were down about 3 percent.
Some, though, weren't panicking.
"History dictates that the seeds of the next bull market are being planted right now. It's very often that first leg up will come amid a gloomy data scenario," says Quincy Krosby, chief investment strategist at The Hartford.
"Confidence will be the catalyst for that," she continued, "regarding profits, regarding financials, the consumer, not if but when energy prices come down. The market has to grapple with many moving parts. We think you're going to see investors come back increasingly into the equity market."
Among the most beaten-down industries: Airlines, financials, retail, and virtually anything having to do with luxury or vacations, such as Carvnival and Royal Caribbean cruise lines.
"This market's been hanging in there, but if oil keeps going higher there's going to be a massive, massive downside move," says David Rovelli, head of US equity trading at Canaccord Adams.
But Krosby predicts a stock market turnaround will happen by the end of the year, after the uncertainty of the presidential election passes and some other bad news gets washed out and more volume hits stocks.
"The market has quite a bit of uncertainty right now, but there's enough stimulus in the system to help the economy," she says. "Growth overseas is still solid albeit slowing, and we think that it's a stock market for active invetsors. When certainty comes into the market it means the market has already run up. The job of investors is to find the pockets of strength in an uncertain enviroment."
Yet it seems investors too often look to sell in uncertainty, when in fact it can be the perfect time to make profits, a phenomenon that had analysts shaking their heads Friday.
"There is speculation, there is volatility. Truth be known, you have the opportunity to take wonderful advantage of these events," de Vries Ashley says. "The worst kind of trading environment is one in which there's nothing going on. If that's your basic premise, this almost feels like heaven."
And that even goes with an economy that is in at least a psychological recession.
"Looking forward for stocks and risky assets in general ... the environment is improving simply because the Fed has lowered interest rates and as long as you have a long enough time horizon, these assets perform well," Tom Higgins, of Payden & Rygel, said on CNBC. "I think that we're going to see this volatility continue."
Correction: The unemployment rate posted its highest monthly gain in 22 years in May. Incorrect information was published Friday.