How long must we put up with this correction?
Probably until August if history is a guide. The market is down 5% from its May peaks, and history says more declines are ahead. History also says there will be a bottom.
The Dow Jones industrials ($INDU) and Standard & Poor's 500 Index ($INX) fell for the fourth week in the last five. The Nasdaq Composite Index ($COMPX) fell for the third week in the last five.
The Dow and Nasdaq ended Friday off nearly 5% from their intraday highs on May 22. The S&P 500 is off 5.6%.
Some big stocks took some hits. Apple (AAPL) fell nearly 4%. Google (GOOG) dropped 2.8%. Home Depot (HD) tumbled 3.6%, and homebuilder Pulte Group (PHM) fell 9.8%, a direct result of rising interest rates.
The 10-year Treasury yield hit 2.514% on Friday, the highest level since August 2011. Gold (-GC) stumbled to a 6.9% loss on the week, finishing at $1,292 an ounce, a level last seen in September 2010. Gold is down 19% this year alone.
Crude oil (-CL) in New York ended the week at $93.69, down 4.3% for the week, although it's still up 2% for the year.
Now here's the bad news about the stock market. When a loss hits 5%, there's more to come, according to Carter Worth, chief market technician at Oppenheimer & Co.
The S&P 500 has experienced 206 corrections of 5% or more since 1927, a bit more than two a year, Worth's numbers show. The median loss is 8.3%; the average decline is 12.2%.
No one can predict a market with precision; Federal Reserve Chairman Ben Bernanke was probably shocked that the Dow fell 560 points in two days after his discussion of the Fed's plans on ending quantitative easing -- the program that's currently buying $85 billion a month in Treasury and mortgage securities. And he was probably relieved when the market didn't fall further on Friday.
Worth was willing to offer his best guess on the size of the correction: 10% or so from the intraday highs on May 22. That would mean the Dow could fall to 13,988, with the S&P 500 falling to 1,518 and the Nasdaq to 3,179.
Not comfortable but hardly catastrophic. If 10% is right, when would the bottom be reached? The median period is 23 trading sessions; the average is 42 sessions. So the bottom will probably be reached at the end of July or so.
And remember: Those numbers are affected by the Great Depression and the 2008 crash.
Worth's call is probably right in the middle of the Wall Street consensus in terms of the size of the correction. People have been calling for a correction since mid-March, when the Dow was already up 10% on the year and had gained 24% from the market's post-election swoon in November.
And it fits the market's tradition of sliding in the late spring and bouncing back in the late summer and fall.
That's the old saw of sell in May and go away. Actually, it should be sell by June and come back later. The Dow is off 2.1%, with the S&P 500 down 2.4% and the Nasdaq nursing a 2.9%. If the losses hold, the market will have fallen in June for nine straight years. Yes, that means June was lousy even before the 2008 crash.
What's an investor to do? Nothing may not be a bad strategy -- if you buy the idea the economy and the market will rebound in the fall. Or the stock market will rapidly get over Bernanke's comments this past week.
Because the fact is, the Fed isn't going to raise rates any time soon. What the Fed may say in September is it will cut the size of its bond-buying. A Bloomberg survey suggests the first trim will cut the purchases to $65 billion a month.
Bernanke, meanwhile, doesn't see rate increases before early 2015. And, as he noted carefully on Wednesday, decisions will depend on the health of the economy. The Fed is projecting growth will be stronger than it is now: 3% to 3.5% in 2014 and 2.9% to 3.6%. But it has tended to be overly optimistic. So if the economy isn't growing as quickly as hoped and unemployment isn't getting any better (or if economic conditions in, say, China or Europe worsen), the Fed could choose to leave things alone.
And it will be a while before rates start to bite. The Fed took its key federal funds rate target to as low as 1% in 2003 to help the economy get past the effects of the Sept. 11, 2001, terror attacks. It started to raise rates in mid-2004, and it wasn't until 2006 that the rates started to brake the economy.
So, the losses the stock market absorbed this week may prove transitory and may be creating some investing opportunities, particularly in housing, furniture, banks automobiles.
Once the bottom is reached, that is. In the meantime, it's probably okay to channel the late Bette Davis and paraphrase one of her most famous movie lines: "Fasten your seat belts. It's going to be a bumpy ride."
|Markets for the week|
|June 21||June 14||% chg.||YTD chg.|
|U.S. Dollar Index||82.52||80.85||2.07%||3.31%|
|10-yr. Treasury yield||2.51%||2.13%||18.25%||43.17%|
|(per troy ounce)|
More on Top Stocks
If these trends continue which by the way, I fully expect them to worsen, any correction will quickly turn into an all out Bear Market. And there will be absolutely nothing Uncle Ben can do about it.
Watch "Atlas Shrugged". While I'm aware that it is a fictional story produced by Hollywood, there is a great deal of truth in it. When Government ties the hands of corporations the corporations stop producing, stop growing, stop making jobs, stop research which leads to growth and nourishes our economy. Business and production and research are what make the economy cycle, not restraint and control. There will always be class distinctions, always. Not all people are created equal, some just have more incentive and self discipline than others. I started at the bottom with a $1.25 a hour job, I put myself through college while working two jobs to make a living and I spent the next 30 years working my **** off and investing wisely to be able retire at the age of 48. And now I work for myself, from where ever I am in the big wonderful world. The opportunities are out there all you gotta do is take them. Government oppression obscures and consumes those opportunities for itself. Everyone is up and pounding their chests about the "1%". The REAL 1% is government that is working to enslave everyone except those that run the government. It's run by power hungry, greedy individuals that are superior at prestidigitation and create the great wizard of Oz. Look behind the curtain people and you'll see the real goblins in our economy.
Most of the pros I listen to seem to be calling for around a 10% correction as well. That is a healthy correction that the market needs. This certainly did not come as a surprise as most of the commentary here has been calling for a reset. Hopefully you have been listening and moved some cash in to the ready position. Develop a strategy/plan and stick to it. Remember emotions or politics have no place in investing. Pick your mark and stick to it. You will be happy down the road.
To anyone who is an ACTUAL investor - I mean you study the company, have faith in its future, and let the money ride a few years at least - this is no different than a 5 year old kid in a car asking "Are we there yet?"
Why does the media continually beat the drum of short term results, sell-sell-sell, buy-buy-buy, etc. I is a disservice to the average American and to the stability of the market as a whole.
We will see what will happen, but past history is not very informative in this instance.
Prior to QE1, the market was manipulated only by private money and only for economic gain.
The current situation is completely different with the market being manipulated by the Fed for political purposes and not restrained by the use of money in existence, but employing the power of the printing press. This time is really different in fundamental ways that make prior experience an unreliable guide.
Why act like this drop is a bad thing, the value of the dollar just went up. Two sides to ever coin.
yea, this is what happens when the market 'high's were actually 'lows' in disguise, seriously people was QE1,2,3,4 etc never going to 'expire'?? nobody can be that stupid, well of course the obama regime is, idiots that have zero idea of what is involved in sustaining a company day to day, but even Bernanke, nothing more but a lefty shill for the commie regime, must've seen this coming, so this nonsense that he was 'shocked' the dow dropped 560 pts in 2days is pure and utter fantasy, fiction
solution: let the private sector 'go' unleash it from uber gov't restraints and let companies hire people for 'real' not temp jobs that last 2wks, but actually mortgage sustaining permanent jobs from companies untethered from the worries of the insane Obama 'unaffordable care act' cuz everybody knows what a colossal disaster that's going to be, QE 1, 2 or 3 was nothing more than the equivalent of putting a band aid on a ruptured artery and the patient is currently about to bleed out!!
The market is up almost 8500 points in 51 months and some of these morons act like
we`re in a depression.Sorry you`ve missed the bull market.Your bitterness shows through.
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
As geopolitical tensions threaten to spin out of control, investors are wondering how best to position their portfolios for the global turmoil.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.