11/18/2013 4:30 PM ET|
5 reasons to expect a correction
While optimism goes a long way in capital markets, stock prices can only defy gravity so long before reality beats back unrealistic expectations.
The market continues to truck higher and the S&P 500 is now sitting on roughly 26 percent in profits year-to-date.
But don't expect it to last.
For many reasons, the market appears ripe for a correction. Not a crash, mind you, as the permabears and the bunker crowd would love to see, just a 10 percent to 15 percent dip in the broader indexes to allow reality to catch up with Wall Street.
You see, the face-ripping rally for many stocks in 2013 has been based almost wholly on sentiment. And while optimism goes a long way in capital markets, stock prices can only defy gravity so long before reality beats back unrealistic expectations.
Here are five reasons I expect a double-digit correction in the S&P 500 sometime in the next six months:
Main Street gets bullish
Stock-based mutual funds have sucked up more cash in 2013 than any year since 2004 — $76 billion, to be exact, vs. total outflows of $451 billion from 2006 to 2012.
If you want to be a fatalist, the fact that the "dumb money" is returning to the market is the ultimate sign of a top. Alexandra Scaggs of the Wall Street Journal tracks down a group of inspiring mom-and-pop investors, who offer quotes like "I still think there's huge upside in the stock market … I don't want to miss out."
Sure, the return of retail investors could provide greater buying pressure to the market and push indexes to even more record highs in 2014. But once people start buying stocks simply because stocks are going up, that sounds to me like the very definition of a bubble.
The Dow Jones set its 37th record high on Thursday — and as usual, financial media was happy to alert investors of that fact.
But it's worth noting that eclipses the 34 record highs set in the year of 2007, right before the bottom fell out.
Record highs alone are not sign of a top, of course. After all, in 1995, the market set 69 new highs — a record amount of record highs, if you will — and continued chugging along until the dot-com crash.
But the highs of 2013 feel different insofar that they are given big significance as an "all clear" of sorts. Consider that in 1995, the unemployment rate was in the mid-5 percent range compared with a peak over 8.2 percent in 1992. Also consider that there wasn't a single year in the 1990s with a GDP growth rate of less than 4 percent. A bull market in stocks was great, but also part of a broader narrative of economic might in the decade.
That's wasn't the case in 2007 as cracks in the growth story started to emerge. And that certainly isn't the case now as persistently high unemployment and anemic growth are the rule.
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The Fed will never stop. Wall street and the bureaucrats endorse and praise it. Have the Fed try to taper a bit and see what happens. Down we go. They can't stop. They have gone too far and will panic when the stock market takes a nose dive, and will print more easy money until we fall off the cliff as a nation. We lost a decade and will lose another with all this madness. When anyone of the Feds say or hint that we will continue the easy money .. the stock market goes up and if anyone says otherwise ... the stock market goes down. Go figure. So many are and will be duped. We should have been done with this QE last September. The economy has not benefited nor improved from it. Mark my words .. it will end badly. The only question is when? “I can calculate the motion of heavenly bodies, but not the madness of people.” -Sir Isaac Newton
1)Facebook valued over $100Billion
2)Twitter valued over $20Billion
3)Dropbox valued over $8Billion
4)Snapchap valued over $4Billion
And I thought benny's policy of printing counterfeit money to the tune of over ONE TRILLION dollars a year was supposed to prevent this?
If you can't afford to lose your money, get out of wall street, get out, take your money and run!! NOW!!!
When this market "corrects" [read crashes], the small investor is going to lose, and LOSE BIG TIME!! If you're a little, small fry investor [under $1,000,000] you're going to lose most of your money people. Know why? Because you CAN'T get in touch with your investment house unless you're plugged in 24/7. Are you plugged in? And how are YOU going to retire in Bahamas [or where ever] if you have LOST your retirement money in wall street?
This is probably the LAST warning the little people are going to get.
6th and final reason................Obama.
Worst liar since Nixon ad worst president, ever.
I only fear paying more taxes. I was kinda hoping to take some profits in early January. I've had a great year and been balancing for year end. Now this, ohhhh nooo! I have to sell more and start over.
I see so many bubbles, I thought Lawrence Welk was back. I know the correction is coming too, but could we hold off til next year?
It's getting so I don't know what to worry about next. The whores in DC or the whores on Wall Street?
I'm heading for the bar and I will have to think it over.
Every time that we cross a 'mile stone' in record setting market highs, you hear these arguments of correction. What I can say, with much confidence, that we're going to have some profit taking starting this week. Here's why: When the economic environment becomes uncertain, people OFTEN revert to SELF PRESERVATION. With a short Christmas buying season this year, things are going to happen rather quickly- better do your prep work now and get ready to 'pull that trigger"
It's human nature, right / wrong; that's just the way we tick. And with the markets great run up lately, remember you only make a profit in the market WHEN YOU SELL !!
Now the latest news coming out is that the latest unemployment numbers we got were cooked- the source of this news is coming from within the white house administration- WHAT !? ANOTHER LIE? SAY IT ISN'T SO! I knew these numbers were cooked since it didn't add up to what rate businesses were hiring in the 3rd quarter, and now it's being confirmed. So what we're seeing here is not only is there no confidence in our political arena, Obama and his inept administration are jeopardizing our recovery with phony data.
OH- one more item: all those who get their health insurance from employers: you will now lose your policies by the end of the year. This is presented in a DOJ (Dept of Justice) argument during court cases involving employer mandates requiring them to cover contraception and other things vs. various company's culture of religious freedom. OBAMA KNEW, PELOSI KNEW, ALL OF THE SENATE KNEW and sold you a 'bill of goods' just to get Obama elected.
And now the lies are flowing out of the WH like a river. And this is just the beginning- wait till Nov 30 !!
Oh really Senor,
Have you or should I ask CAN you read economics and especially economic HISTORY??? When the market is pumped up by counterfeit, PAPER MONEY that is NOT backed by ANYTHING, IT'S CALLED A BUBBLE AND BUBBLES BURST. ALWAYS.
Have you been listening to your broker or the government shills for wall street?
If YOU believe THEM, you might just as well take your money and burn it. At least you'd warm for a while.
This market is NOT based on a booming economy, but merely benny the counterfeiter PUMPING TRILLIONS into wall street. You think this is sustainable?
1)$500-700Trillion in Scam Derivatives
2)Soaring Global Debt
3)Record Stock Buying on Margin
4)Japan sales tax going from 5% to 8%
5)The massive run so far
6)China Black Hole
7)Euro-zone 12% plus unemployment
8)Growing FED balance sheet
10)Borrowing of Debt to finance Stock Buybacks
This is just a few of the issues we face, most of which will only get worst, not better. So just because some crooked folks at the Feds are printing to infinity, everything is alright. Well it's not. Stocks going higher has never been a warning of what's to come.
Good information to know to look at P/E ratios and IPO levels as market top indicators. I'll add those to my habit of watching the 10 year treasury for indications the Fed has lost control of interest rates. (when interest rates go up, stocks become less attractive).
OPRAH THE FAT BLACK AZZ CAME OUT AND SAID PEOPLE HAVE NO RESPECT FOR OBAMA AND THE OFFICE BECAUSE HE IS BLACK. CORRECTION OPRAH, IF IT WASN'T FOR THE WHITE VOTE, OBAMA WOULD NOT BE IN OFFICE
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[BRIEFING.COM] The major averages finished the session on a modestly higher note, but not before heavy selling pressure sent the Nasdaq Composite (+0.3%) for a test of its 200-day moving average. The S&P 500, meanwhile, added 0.7% with all ten sectors posting gains.
Equities climbed at the open with the advance built on the relative strength of biotechnology and other momentum names. Despite the solid early gains in those areas, the market began fading from its high as multiple ... More
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