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From Barron's 3-5-07

The global stock market selloff that stunned investors Tuesday looks more like a passing squall than a full-throttle hurricane.

The swift fall fittingly began in China, now the engine of economic growth worldwide, and quickly spread to the U.S., where the major market indexes lost 3% to 4% in a single session. A decline of that magnitude, the worst in four years, understandably inspired fear that the current bull market, which began in October 2002, has come to its untimely end.

Such concerns seem premature, however, because the global economy still looks healthy, equity-market valuations are reasonable in most major markets and the demand for stocks from corporations and private-equity firms remains robust. Barron's ran a bullish cover story last summer, near the market's 2006 bottom ("Time to Buy," July 24, 2006), and we're not throwing in the towel yet.

"It was a long-overdue correction," says Byron Wien, chief investment strategist at Pequot Capital. "The markets had gone 990 trading days without a 3% decline, and people were too complacent."

A bullish Wien thinks the S&P 500 could hit 1,600 by year end, a 15% gain. He says U.S. stocks look attractive with the S&P valued at 15 times projected 2007 operating earnings. The Dow Jones Industrial Average trades at 14.4 times estimated "07 profits. Both the Dow and the S&P 500 are in negative territory for the year, with the industrials off 2.8% and the S&P 500 down 2.2%. The so-called earnings yield on both the S&P 500 and the Dow is close to 7%, which compares favorably with the 4.5% yield on 10-year Treasuries.

History suggests that stocks may do well in the next two months. There have been 38 days since 1979 when the S&P 500 has suffered a single-session loss of 3% or more. The average gain in the ensuing 60 days has been 6.9%, with the index rising in 31 of the 38 cases, according to Citigroup research.

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