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Wall Street to brokers: Investors should buy, not flee

Traders work on the floor of the New York Stock Exchange
Traders work on the floor of the New York Stock Exchange

By Joseph A. Giannone

NEW YORK (Reuters) - Wall Street's advice to investors battered by plunging markets: Keep buying stocks.

With markets plunging for more than a week, and no relief in sight, some of the biggest brokerages on Thursday afternoon and early on Friday told their advisers that clients should not flee but instead buy into the panic.

"Mr. Market is often wrong and panic selling is dangerous," David Bianco, chief U.S. strategist for Merrill Lynch global research, wrote in a strategy note. "Panic selling in a correction is dangerous, as the best days usually closely follow the worst."

The benchmark S&P 500 Index sank into "correction" territory on Thursday, falling more than 10 percent from highs reached in April, and slipped again on Friday despite an early rally inspired by an encouraging job growth report.

Federal lawmakers reached a debt-ceiling agreement this week that removed the threat of a U.S. default and briefly inspired a burst of optimism. Yet investor sentiment quickly became gloomy again amid persistent views that weakness in the U.S. economy and spreading sovereign debt problems in Europe would lead to another slowdown.

Merrill Lynch strategists, in a conference call early Friday for its 16,241 advisers, said clients should buy the largest companies in the S&P 500 -- excluding financial services stocks.

Bianco, in a research note, predicted corporate earnings growth will slow to high single-digit rates, prompting analysts to "trim but not slash" their 2012 profit forecasts. Business spending will remain robust, particularly among energy, mining, transportation, utility and capital goods companies.

Wells Fargo Advisors, third among U.S. broker-dealers with 15,194 advisers, recommended that long-term investors trim their bond exposure by 2 percent and bump up their holdings in large-cap stocks by a similar amount.

"It is still too early to jump into the market in a big way, but long-term investors should use current market weakness to add to equity positions," Wells strategists wrote in a special market update for advisers.

The Wells Fargo & Co unit repeated these views in a live "radio show" Thursday afternoon that had been scheduled to discuss this week's debt-ceiling agreement by U.S. lawmakers.

At Charles Schwab Corp, call center volume was up more than 30 percent on Thursday as nervous clients sought investment advice, spokesman Greg Gable said.

Schwab also posts regular commentary from its chief investment strategist on its website, which has been getting a lot of traffic as well. The general message that "you don't want to design an investing strategy in the moment of a market panic," Gable said.

Edward D. Jones & Co, whose more than 12,000 retail brokers cater to small investors, said the economy may be growing slowly but it is not shrinking.

Jones investment strategist Kate Warne, in a note to financial advisers, said investors are ignoring some positive signals: banks are in good health, oil prices are below $90 a barrel and companies are financially stronger.

"Don't let (market) declines cause you to make decisions to overturn your investment strategy," Warne advised the firm's brokers. "Instead, consider adding quality stocks, especially those that have a track record of increasing their dividends."

In Toronto, Royal Bank of Canada's global asset management unit said it was finalizing a special commentary to help provide its advisers with market context and positioning.

A Bank of Montreal broker said Canada's No. 4 bank had not reached out to its advisers since last week when the debt ceiling debate was coming to a head, though nerves are still frazzled.

"It honestly feels like you're walking in a field of land mines and you're about to step on another one," said the adviser, who had not been cleared to speak with the media.

Michael Ryan, chief investment strategist for UBS Wealth Management Americas, told the firm's 6,862 advisers investors should refrain from liquidating their positions into the panic, saying stocks are "deeply oversold."

That said, the selling pressure will likely persist.

"The market damage experienced over the past two weeks has been stunning with regard to both speed and scope, and it will take time before markets recover," Ryan wrote in a research note distributed through UBS's market response center.

(Additional reporting by John McCrank in Toronto; Editing by Phil Berlowitz and Rob Wilson)

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