Everywhere, companies are reporting bad news. Union Pacific
In the face of such news, and considering that there's much more of it from hundreds of other companies, many investors are blanching. They're breaking out in a cold sweat and clutching their dollars tightly. They're telling themselves that this is a scary and bad time to be in the stock market, that they're better off waiting until things calm down before they jump back in.
Other investors already owned some of these companies, and they sold upon hearing this news. Some of these companies saw their shares drop sharply when their financial results were released. Shares of Eaton
But other companies saw the reverse happen. Sherwin-Williams
What's going on?
The reason why some stocks rise while others fall in response to bad news is that in many cases, investors already expected these firms to suffer big losses. With our economy hobbling along lately, it's silly to expect that companies like Black & Decker
Also, what looks like bad news can sometimes be good news for investors. Laying off 10,000 people is terrible news for workers, but if it makes a company leaner and more nimble, it might be a positive for the stock.
What to do
The key is to avoid acting automatically whenever we see what looks like bad news. When companies are punished for reporting a bad quarter, look more closely to see whether the market has overreacted. If it looks like they have, then we may well be looking at a bargain opportunity -- one that won't necessarily last all that long.
