On May 16 we posted a cautionary note on the stock market. We took the news that Friday May 12 marked the highest daily number of IPOs filed with the SEC in six years as an indicator that the markets were potentially set for a fall. Since that post, the Dow, NASDAQ and S&P are down 6.3%, 7.4% and 5.0%, respectively.

Fueling the sell-off are concerns about rising interest rates. The Fed has now raised rates 16 consecutive times, taking the fed funds rate up to 5.0%, its highest level in five years. Making matters worse, Wall Street has quickly turned sour on new Fed chief Ben Bernanke, who had sent some early mixed signals regarding his position on rates and now seems to be taking an aggressively hawkish stance on inflation. Many think this will lead to an over-tightening by the Fed, causing a dramatic softening in the economy – not at all good for stocks.

We think the markets, as usual, have over-reacted and it might be a good time to start picking up some stocks that have suffered during this sell-off (take a look at CNET and TFSM).