After the Federal Reserve decided not to take extraordinary measures to try to rescue investors, the stock market seemed to realize the full import of all the challenges it currently faces. Between slowing emerging market economies, huge uncertainties in Europe, and growing concerns in the U.S, the last thing stocks needed was a bearish call from Goldman Sachs recommending that its clients sell the S&P 500 (INDEX: ^GSPC) short. In response, markets plunged, with the Dow Jones Industrials (INDEX: ^DJI) falling more than 250 points, and other major market indexes losing between 2% and 3% on the day.
But are investors overstating the importance of Goldman's bear call? Looking more closely at its recommendation, Goldman suggested shorting the S&P with a target of 1285, about 5% below where the market opened the day, and roughly corresponding to the lows that the index hit in May. Even if Goldman's prediction comes to pass, it would still leave the market with a gain on the year.
More importantly, anyone who expects to put more money into the market than they're going to take out over the next year or two should want stocks to fall. Already, Dow components Chevron (NYS: CVX) , JPMorgan Chase (NYS: JPM) , and Hewlett-Packard (NYS: HPQ) are among the dozens of large-cap stocks offering earnings yields of 10% or more, and a further decline in the market could allow many other stocks to join them. Moreover, every percent the market falls gives you a better chance to grab a huge long-term value with an additional margin of safety.
Don't be afraid
Don't let Goldman's bearish call make you scared. Instead, look at it as helping you get a big opportunity to increase your returns.
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The article Take Advantage of Today's Dow Plunge originally appeared on Fool.com.
Fool contributorDan Caplingerdoesn't own shares of the companies mentioned. You can follow him on Twitter@DanCaplinger. The Motley Fool owns shares of JP Morgan Chase.Motley Fool newsletter serviceshave recommended buying shares of Goldman Sachs Group and Chevron. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Fool has adisclosure policy.
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