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Since last August, the stock market has been dominated by headlines about financial matters in Europe. It has been almost as though the fundamentals of U.S. stocks don’t matter anymore. Things might look great (well, maybe they haven’t ever looked great in recent months, but at least okay) in the U.S. but if Europe didn’t seem to be making any progress on solving its latest crisis (Greece, Ireland, Portugal or wherever) the Dow would fall sharply. Then if good news came from across the Atlantic, the Dow would soar.
This has been true of sectors and individual stocks as well. For example, many of the U.S. banks have been making steady progress in recovering from the real estate/financial crisis of 2008 and early 2009. But that didn’t matter this year. When investors became worried that European banks might fail, they crushed bank stocks here in the U.S.--even those banks that had little or no exposure to Europe. Some of the American bank stocks got pushed down to levels this fall that were near or even below their lows of early 2009. And the same has been true of many other turnaround stocks. When investors get spooked by the headlines, they dump anything they consider risky, and turnaround stocks frequently (although often wrongly) fall into that category.
During periods like this when the headlines dominate everything else, there is really only one thing you can do: be patient. When the news gets better--and eventually it will--stock prices will once again be driven by fundamental, economic factors. And if they have been depressed by negative headlines, stocks are likely to soar when the headlines subside. If you get scared by the headlines and dump all your stocks, you will miss the rebound and be left wondering when to get back into the market again.