Yes another headline that reads "is the stock market due for a correction" I read these headlines probably 3-4 times a week, I also read about 3-4 dow 20,000 articles a week as well, so its a 50/50 split....its interesting to hear the case for the correction because there is a lot that comes with the headline...the one that caught my attention this time that I have known about was that in the mid 90s and mid 2000s markets didn't have a correction of a sizable 10% for years....and to think both of those times were during bubbles, so my point is that this is another asset bubble brewing that is keeping any 10% correction as far away as possible... this bubble Im going to call the fed bubble, we had the dot com bubble, the housing bubble, the private equity bubble, the commodity bubble, etc etc etc etc...bubbles are the only thing now days that can grow our economy since organic growth has been washed away .... this one is the FED/stimulus/ QE bubble, who knows what they will call it when the bubble bursts, but Im sure someone will come up with a good name .....as for corrections I don't know why the fed and the markets and all the economists even fear a correction, if you look at history, corrections are actually healthy for the market, if you go back to 2010, 2011 and 2012 all corrections were bought and losses were erased, so why the big worry about a correction, if anything most bulls should embrace it with open arms and accept that corrections are a great thing, why buy the dow at 18,300 when you can buy it at 16,500...there is going to be a correction if you like it or not, when it will happen nobody knows of course, but it is just a matter of time before the markets correct...the only question you will need to keep in mind is if its just a minor 10% correction or the start of a 30-40% 2-3 year bear market....other than that the fed has QE 4 coming so sit back and relax, QE 4 will keep any bear market away for at least a few years...
Is the stock market due for a correction?
By Mitch Zacks1 hour ago
Mitch Zacks is Managing Director and Portfolio Manager at Zacks Investment Management, a wealth management boutique. This article originally appeared on his excellent Tumblr.
35 months. That’s about how long it’s been since the market pulled back at least 10%, which is an eyebrow-raising stretch of time. Take a look at the market each year going back to 1980 and you’ll find that the S&P 500 has averaged an intra-year drop of a little over 14%. Yet, here we are approaching three full years of a largely uninterrupted climb.
Is history telling us the stock market is due for a correction?
Be Prepared, Not Concerned
I’d classify the market’s behavior as uncommon or maybe even a little curious, but certainly not “concerning.” There have been a few periods like this one where the market charged higher and went years before pausing to pullback somewhere in the 10 – 15% range. The mid-90’s were a good example, and the market even went about three years in the 2002 – 2007 bull market without dipping more than 10%. Corrections, by definition, follow no clear pattern, are unpredictable, and pretty much come and go as they please. To say that a correction is around the corner — on the basis that we haven’t had one in years — is just as likely to be wrong as it is right.
But, history tells us we should at least be prepared. We’ve experienced a sharp pullback each year from 2010 – 2012, with the market resuming its upward course after only a few months. Since 2012, the closest thing to a correction we’ve seen was last year when the market fell about 7%, but it was so light few people even remember it.
The S&P 500 Has Not Corrected More than 10% Since 2012
The relevant pullbacks seen so far in this bull market, go as follows (to note, these are price returns and do not include dividends):
2010 – a sharp dip of around -16% from April to June, with the market ultimately finishing about 13% higher for the year.
2011 – roughly -19% correction from May to mid-August, with the market finishing flat on the year.
2012 – the market pulled back approximately 10% from April to June, but recovered to finish up about 13%.
2014 – a decline in the neighborhood of 7% over a month in the fall, with the market posting an 11% gain on the year.
If we omit 2014 from the conversation (since it wasn’t a real correction), it appears that this bull market has had a preference for pulling back in the summer months. With summer approaching, you may start to hear pundits calling for the ‘overdue’ pause. Don’t get too stirred if you do. Remember, as I said before, corrections by nature are unpredictable and don’t announce their arrival, so anyone calling for one has little basis for which to do so.
3 Lessons to Remember About Corrections
1) Corrections are Short, Sharp and Sometimes Scary – this makes them noticeable, and can cause many investors to wonder if a 10% decline will turn into a 30% bear market that lasts years. That means emotion can enter into the decision-making process, for which investors have to be careful. A sharp pullback is often times just a normal – even healthy – part of a bull market. The key is having confidence in your longer-term outlook for stocks.
2) Trying to Time a Correction is Risky – the corrections in 2010, 2011 and 2012 each lasted about 3-4 months which, in terms of most investor’s time horizons, is an extremely small window of time. Remember too that many investors will sell after stocks have already fallen 10%, when fear sets in. That’s usually around the time when the market swiftly recovers, which can adversely impact that investor’s long-term returns – in addition to potentially racking up transaction costs.
3) Corrections, by Definition, Exist in Bull Markets – this may seem like I’m stating the obvious, but if there’s one thing we actually know about corrections, it’s that they are going to happen. We just don’t know when and for how long. In many cases, simply acknowledging that corrections “come with the territory” of equity investing will help you apply patience and a steady hand when they do arrive.
The Bottom Line for Investors
My outlook for stocks remains positive for the year, meaning that if we were to see a few months of downside volatility I think it would just be temporary — a correction. That is not to say I think a pullback will happen this summer or even this year. There is simply no way to know. I would just encourage investors to think about the medium to longer term trajectory of stocks if/when some bumpiness hits, especially given the fact we haven’t seen a real correction in three years. It might not feel so familiar given the recent strong performance of the market, but being unfamiliar doesn’t make it unprecedented.
Is the stock market due for a correction?
By Mitch Zacks1 hour ago
Mitch Zacks is Managing Director and Portfolio Manager at Zacks Investment Management, a wealth management boutique. This article originally appeared on his excellent Tumblr.
35 months. That’s about how long it’s been since the market pulled back at least 10%, which is an eyebrow-raising stretch of time. Take a look at the market each year going back to 1980 and you’ll find that the S&P 500 has averaged an intra-year drop of a little over 14%. Yet, here we are approaching three full years of a largely uninterrupted climb.
Is history telling us the stock market is due for a correction?
Be Prepared, Not Concerned
I’d classify the market’s behavior as uncommon or maybe even a little curious, but certainly not “concerning.” There have been a few periods like this one where the market charged higher and went years before pausing to pullback somewhere in the 10 – 15% range. The mid-90’s were a good example, and the market even went about three years in the 2002 – 2007 bull market without dipping more than 10%. Corrections, by definition, follow no clear pattern, are unpredictable, and pretty much come and go as they please. To say that a correction is around the corner — on the basis that we haven’t had one in years — is just as likely to be wrong as it is right.
But, history tells us we should at least be prepared. We’ve experienced a sharp pullback each year from 2010 – 2012, with the market resuming its upward course after only a few months. Since 2012, the closest thing to a correction we’ve seen was last year when the market fell about 7%, but it was so light few people even remember it.
The S&P 500 Has Not Corrected More than 10% Since 2012
The relevant pullbacks seen so far in this bull market, go as follows (to note, these are price returns and do not include dividends):
2010 – a sharp dip of around -16% from April to June, with the market ultimately finishing about 13% higher for the year.
2011 – roughly -19% correction from May to mid-August, with the market finishing flat on the year.
2012 – the market pulled back approximately 10% from April to June, but recovered to finish up about 13%.
2014 – a decline in the neighborhood of 7% over a month in the fall, with the market posting an 11% gain on the year.
If we omit 2014 from the conversation (since it wasn’t a real correction), it appears that this bull market has had a preference for pulling back in the summer months. With summer approaching, you may start to hear pundits calling for the ‘overdue’ pause. Don’t get too stirred if you do. Remember, as I said before, corrections by nature are unpredictable and don’t announce their arrival, so anyone calling for one has little basis for which to do so.
3 Lessons to Remember About Corrections
1) Corrections are Short, Sharp and Sometimes Scary – this makes them noticeable, and can cause many investors to wonder if a 10% decline will turn into a 30% bear market that lasts years. That means emotion can enter into the decision-making process, for which investors have to be careful. A sharp pullback is often times just a normal – even healthy – part of a bull market. The key is having confidence in your longer-term outlook for stocks.
2) Trying to Time a Correction is Risky – the corrections in 2010, 2011 and 2012 each lasted about 3-4 months which, in terms of most investor’s time horizons, is an extremely small window of time. Remember too that many investors will sell after stocks have already fallen 10%, when fear sets in. That’s usually around the time when the market swiftly recovers, which can adversely impact that investor’s long-term returns – in addition to potentially racking up transaction costs.
3) Corrections, by Definition, Exist in Bull Markets – this may seem like I’m stating the obvious, but if there’s one thing we actually know about corrections, it’s that they are going to happen. We just don’t know when and for how long. In many cases, simply acknowledging that corrections “come with the territory” of equity investing will help you apply patience and a steady hand when they do arrive.
The Bottom Line for Investors
My outlook for stocks remains positive for the year, meaning that if we were to see a few months of downside volatility I think it would just be temporary — a correction. That is not to say I think a pullback will happen this summer or even this year. There is simply no way to know. I would just encourage investors to think about the medium to longer term trajectory of stocks if/when some bumpiness hits, especially given the fact we haven’t seen a real correction in three years. It might not feel so familiar given the recent strong performance of the market, but being unfamiliar doesn’t make it unprecedented.
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