Experts split on whether a big correction looms

While 2 market watchers say the current downturn isn't the start of a major sell-off, another predicts a 15% decline.

By MSN Money Partner Jan 31, 2014 1:43PM
A trader works on the floor of the New York Stock Exchange minutes after a Federal Reserve announcement on January 29, 2014 in New York City
© Spencer Platt/Getty ImagesBy Matthew J. Belvedere, CNBC

The rough month for stocks -- capped Friday by another sharp decline on Wall Street -- is raising concerns about whether the recent sell-off is the start of the long-feared correction and whether 2014 is doomed because of the often-accurate January barometer.


Two leading market watchers told CNBC that the recent downturn won't turn into a true correction, but another analyst predicted a steeper 15 percent decline.


On the optimistic side, JPMorgan chief U.S. equity strategist Tom Lee said in a Squawk Box interview that he doesn't think a 10 percent correction is likely. "The reason I think we're not going to go down as much as 10 is the high-yield market is behaving. And (the) high-yield market has led equities."


"I think we're within a couple percent of the bottom," Lee added, predicting stocks could "decline like (during one of the sell-offs) last year, which by the time we were down 6 percent or 7 percent it feels horrible."


He concluded that 2014 is going to turn into a solid year. "I think we're going to end at least at 2,075."


James Paulsen, the chief investment strategist at Wells Capital Management, also told CNBC that the current market drop is not the start of a 10 percent correction. "When I look at the character of the market, this isn't it. I think we're maybe going to rally higher this year before we get a 10 percent correction."


"We may be bottoming here over the next few weeks," Paulsen said. "I just don't think the market is facing as many hurdles as we seem to think."


"The big elephant in the room at the end of the day is going to be momentum over the United States economy," he added. "And it's pretty good" -- an assertion backed up by the release Thursday of the government's GDP report, which showed the economy grew by 3.2 percent in the fourth quarter of 2013, in line with expectations.


"If we continue to print good numbers in the United States, the market is going to forget about emerging markets." Paulsen said. "If the market stays down and shows some signs of bottoming, a lot of new buyers (could be) coming into the market."


He expects the Standard & Poor's 500 Index ($INX) to rise toward 2,000 sometime this year before correcting back toward 1,850 by year's end.


After last year's 30 percent gain, stocks have had a rough start in 2014. The Dow Jones industrials ($INDU) have dropped by more than 4 percent as of Thursday's close, while the S&P 500 Index has fallen by about 3 percent.


If the adage "As goes January, so goes the year" holds true, investors could be in for a volatile year. The January barometer has been right in 62 of the past 85 years, or 73 percent of the time.


Let's turn to the bad news now.


Crunching historical numbers on stocks, one strategist who spoke to CNBC on Friday warned the market could see a painful 15 percent correction.


Rick Bensignor at Wells Fargo Securities told Squawk Box that his research shows parallels between the market highs in December and the peak in September 1929.

Notice the similarities between the two charts.

He stressed that he's "not looking for a crash . . . like what ultimately took us to the 1932 bottom," but pointed out the first leg of the decline then was 15 percent.


Given market forces today, a similar 15 percent decline could happen in the near-term, he added.


More from CNBC

69Comments
Jan 31, 2014 3:17PM
avatar
Just wait until the Fed fully pulls the rug out from under the market when they finally stop propping it up the economy with the now $65 Billion a month in bond purchases.

Oh, the real GDP number, before they re-normed how they calculate them in Q3 of 2013, is less than a 1% increase.  Unemployment, the number we should be watching is the U6 rate, not the U3, as it counts those that have finally given up looking for work and those that are severely underemployed; that number is over 13% !!!!

Smoke and Mirrors and printing money does not constitute a stable economy!

Jan 31, 2014 2:47PM
avatar
You might as well check with your astrologer or a good tarot card reader. Wall street is a joke.
Jan 31, 2014 2:09PM
avatar

Why does anyone still listen to analysts?

The real deal is that corrections are normal, and I can say with near 100% certainty that one is coming.

What I don't know is when.

Does it start tomorrow?

Next year?

Five years from now?

 

No one knows; if they say they do, they are either lying or don't know any better.

Just stay the course and don't change strategies based on some idiot on TV

Jan 31, 2014 2:56PM
avatar
Time to take the money you made last year and run.
Jan 31, 2014 2:05PM
avatar
Print good numbers is the reality of the situation.  That GDP number was total BS.  We had maybe .5% growth in the fourth quater.  The old shell game has three different numbers and none of them are accurate.  But the longs don't seem to care so party on.  Deflation is the result sooner or later.  No way around it.  Globalization requires all economies blend into one.  The US and the EU need to decline as they are now and  possibly the others rise a bit.  But with developing economies now contracting the whole thing is a mess.  Holding wages steady and adding inflation has been somewhat effective up till now but folks are feeling the pinch and will begin complaining.  If we didn't debt the issue would really explode. Get used to deflation as that will be the soup de jour for the year.
Jan 31, 2014 2:27PM
avatar

Even with the fake GDP figures they couldn't get this thing off the ground. Ask a real estate salesperson when is the best time to buy?  Answer today.  Ask anyone on Wall Street which way the market will go?  Answer UP.

Jan 31, 2014 3:02PM
avatar
The only good that could come out of a crash would be for the Privately owned bank, "THE FEDERAL RESERVE" would get ABOLISHED!! 
Jan 31, 2014 4:00PM
avatar
The Obama regime hates business because they are too stupid to run one or even ever get hired outside of the public sector. That is not good for the economy and will eventually be reflected in stock prices once they run out of tricks and lies.
Jan 31, 2014 4:43PM
avatar
Chevron's profit tumbles, Mattel tanks, Wal-Mart sees trouble ahead... this morning's headlines on MSN Money.  That doesn't sound like a correction.  Sounds more like we're back to that sub-2% growth that's been the trademark of the last 5+ years.
Jan 31, 2014 4:18PM
avatar
Well if the market tumbles the "Big Government Crowd", (BGC) can cheer on the sidelines that Wall Street got hammered. This group largely consists of those dependent on government either through handouts, government retirements, or a government paycheck. Now those that actually work for living and produce something sellable will get hammered, especially their IRA's. I am not sure why the recipients of the taxpayers largess want to see their fellow countrymen get treated as such but I guess is there is such a thing as feeling more wealthy if the other guy loses everything, that's not exactly a Christian attitude, but then not many on the left support religion anyway, except for the Muslim religion, in which case the support is  more out of fear than belief or respect.

But be careful what you wish for, a lot of state and local pension money is invested in the markets and a lot of the federal government's income comes from capital gains both short and long term. So in the long term, another big downfall will hurt the big government crowd as well eventually. Then everyone can cheer, you for me and me for you all in misery together. Wow, what fun. Sounds like FDR's 1930's all over again.

Jan 31, 2014 2:55PM
avatar
Smoke and mirrors soon to be a lot of losers crying like before, I remember the cries of they lost their money. At work crabby dumb dumbs think they'll get rich. Worry about retirement this is the hidden power structure paradigm you will never have enough. One bad health problem all you save gone, dollar crash all your years of saving worthless effort. Bible says wealth is deceptive and not to trust in it.
avatar
Gee folks the stock market is way over priced thanks to Bernanke buying up stuff

The retired people are taking more money out of the stock market then newbies are putting in. Can you say stock market crash???

Inflation is running at a real rate of 4 percent a year which is why banks are not loaning money at 3.5 to 4 percent for houses as they will lose money in the coming years as inflation increases due to Bernanke's QE's

The Fed will have to start increasing rates to stop the increases in inflation. So expect to see rates go up to 3 percent by end of year and perhaps above 6 percent in 2015.

With house rates back up to about 7 percent and inflation crawling back down to 1 percent due to the Fed's increase in rates the housing market should boom as banks will have a 6 percent spread between their rates and home loans once again. They will not be losing money on home loans due to inflation.

Next time the Feds taper the QE3 they will most likely cut by $20 billion a month done to $45 billion to get the QE3 to zero by end of year.

Yep without Bernanke pushing QE3 the asset class will fall like a rock as retired people take their money out to live on.

Jan 31, 2014 3:15PM
avatar
By experts he means those who have inside trading info.
Jan 31, 2014 4:43PM
avatar

The "Bear" is out of hibernation:


We as a "Country" have tried to extend our help and support to those across the globe who have suffered an economic meltdown.


We saw that the need was in favor for our "growth and prosperity" in our own country, yet we were unable to "Create" enough money to override the fall and has but exacerbated the inevitable.


Those who have been "In the Know" and some of us lucky enough to have followed their lead, have made a great deal of money in the "Longest running Bull market" on our times, due to this "Intervention of our Government".


Now we will pay for the flaws of man, in our country and that of those who govern those countries who have wasted and mismanaged or totally destroyed the very standard of which they lived by.


China will see an uprising of their own people for fair play in their  "Government and workplace".

Greece, Turkey, Spain. Portugal, Italy, Argentina, Russia, France, India almost everywhere one look, one can see an economy gone wrong.


We are no better off then they are, we just happen to have a larger banking system, and the world revolves around the strength of the U.S. Dollar. We've printed more money then ever before and our government became its' own broker and bought up its own treasury bonds. We gave 0% interest to the wealthiest and they bought up their own companies stock, or the companies bought up their own stock and the DOW is now hurting due to an overvalued market.


It is time for us to pay for the "bailout" of the last depression we tried to avoid, in retrospect  we only extended the payment due..


So, Take your money kids and run, the "Bear" is out of hibernationThe DOW is about to go South..It's not the end of the world it's just the end of the "Bull" for now. Brighter days are ahead, down the road.



Jan 31, 2014 3:59PM
avatar
anacharis, you might want to consider that the fed is backing off the bond purchases, That means the gov. is not throwing billions into the stock market. Yes, that is a good indicator the bottom is going to fall out of the Market. Why do you think, the market has been on a downward trend the last couple weeks? The fed announced they were backing off shoring up the market,  the market responded. I agree with meramecjack, take your money and run.
Jan 31, 2014 4:42PM
avatar
The earnings reports and guidance from the biggest names don't look very good. A certain level of growth was anticipated last year and built into the market. Now it has to be revise downward, probably 5 to 10%. And with the Fed tapering, maybe more. Not sure this economy can stand on its own two feet. Plus, just how much will consumer spending disappear with sky high ObamaCare premiums and thousands in out-of-pocket expenses. And the erosion of wages over time is killing most people as well. Soaring rents and healthcare costs, hidden inflation, shrinking wages, fund your own retirement, etc., it's a wonder more people aren't destitute. 
Jan 31, 2014 4:20PM
avatar
This is interesting.....Will the Market correct or not.......All I can say is.....I, being an avid Surfer have traveled the world extensively chasing the waves....and as an old wise Costa Rican Medicine man once told me years ago when I had just arrived and asked if a swell was coming.....He looked me dead in the eye and said...."There is always a swell coming" amigo !!!!!!!

No truer words have ever been spoken......
Jan 31, 2014 3:20PM
avatar
Rick Bensignor's charts. I can look in the  sky and imagine a cloud to be what I want it to be. That was then and circumstances are NOT the same now. Stop looking in the rear view mirror. NOBODY yes NOBODY knows.
Every investor needs to make investment decisions that they can sleep well with.
Jan 31, 2014 3:39PM
avatar
How about a 70% correction. Screams and gun shots have been absent from Wall Street for
far too long!! Besides Wall Street needs to see the world from a Main Street level!!

Jan 31, 2014 2:21PM
avatar
Depending on what you consider big we are halfway there. We are down more than 5%, so I say we are 25-35% there. I'm holding my cash for now.
Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

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.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

118
118 rated 1
270
270 rated 2
472
472 rated 3
714
714 rated 4
624
624 rated 5
608
608 rated 6
623
623 rated 7
445
445 rated 8
319
319 rated 9
125
125 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
AAPLAPPLE Inc10
ATVIACTIVISION BLIZZARD Inc10
BIDUBAIDU Inc10
BMYBRISTOL-MYERS SQUIBB CO.10
CELGCELGENE CORP10
More

VIDEO ON MSN MONEY

ABOUT

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.