August was not kind to investors. For most of the major stock market indexes, the month saw the worst performance in three or four years, which has raised all manner of questions: Is this a buying opportunity? Or is this the start of a steeper decline and a bear market?
The bears argue that a protracted pullback in the market is overdue. After rallying for six-straight years, the stock market is "long in the tooth," say the bears.
On the flip side, bulls say that this correction will end like all the others seen in recent years: with stocks quickly rebounding and rallying to new record highs.
Only time will tell which side is correct, but for now, the U.S. and other developed-market economies seem to be weathering the storm in China and other emerging markets.
The bulls are counting on that to continue. If it does and they're right, then the peak-to-trough 12.6 percent correction in the S&P 500 will turn out to be a blip in the longer-term bull market.
Investors buying now must contend with the potential for more volatility, negative news flow from China, September seasonal weakness and Fed uncertainty. But if the dust settles without a major economic shock, those investors will be glad to have bought when others were fearful.
Here are the some of the areas that could rally strongly if and when the market turns around.
Perhaps the most beaten down area of the market is commodities. Down four-straight years heading into 2015, hopes were high that the asset class could finally bottom out. Instead, the sell-off accelerated, with most commodities now at the lowest levels in years or even decades.
While questions remain about whether commodities have more downside in store, bold investors could begin to wade into the pool. After all, many commodities are now below their cost of production, suggesting that such prices won't last over the long term.
The United States Commodity Fund (USCI | D-33), which weights its holdings to mitigate "roll costs" from contango is one of the best ETFs for commodity exposure. It's down 12.8 percent year-to-date and 42.5 percent from its highs.
YTD Return For USCI