Predictions of a coming market correction have been batted around by the industry’s talking heads – we’ve even alluded to it this year. Recent weakness, particularly in the past week, has increased the frequency of these predictions.
Bear markets (market drops of 20% or more) are not all that uncommon, averaging one or two occurrences every decade. Suggesting a drop in equity markets is a little like forecasting fog on the California coast; it’ll show up eventually, and probably just in time for your vacation.
The big question we are being asked is: Is this the beginning of a correction?
The reality is, it is too early to tell. While we have seen some softening in our models, the indicators that drive these look through daily market waves, detecting momentum over the long term. They continue to lean slightly bullish, a pattern that could remain for a period of time before a correction occurs.
Bottom Line: In the short run, the market appears to have reached “oversold” territory – a position from which near-term returns have typically been positive. The long term view remains the same: returns that are likely to be below average for both stocks and bonds.
– Greg Stewart, CIO