I’m traveling outside the country but I am never far from the latest financial market update. I saw today’s market move and with the sluggish start to the New Year in stocks, I thought I’d drop you all a line with my thoughts.
While many are surprised by the market’s decline this year, hopefully our readers were well prepared. Since January 1st this year, we have been suggesting that a 10% correction was in the cards. After a year like last year, more volatility is typical. When the first 10% correction comes along after a long period without one, history tells us that on average a 16% decline occurs.
At the same time, while this volatility is not unexpected, stock market years after 25%+ gains usually generate positive returns by the end of the following year. So just walking away based on the historical tendency for some volatility is not an effective option.
So far there is nothing to suggest that the correction story will turn into a crash. Earnings are actually better than expected on average. Interest rates have plunged rather than rise as many expected. And the recent sell off has actually dissipated much of the overbought exuberance left over from last year.
All the best,