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Investment Perspective: Timing a Correction

| January 17, 2018
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Timing a Correction 

The stock market is on a tear. The S&P 500 rose 19.4% in 2017 excluding dividends, and is already up over 4% in 2018. Is it a bubble or a sugar high?  Or undervalued? Or the aftermath of the Trump Tax Cut? 

For most of us it is better to be a long-term investor than to be a short-term trader. And also wiser.  It is also extremely hard to forecast a correction.  Anyone lucky enough to pick the beginning of a bear market never knows exactly when to get back in. Remember, you must be right twice. 

2016 was a good example.  The market got off to a terrible start, one of the worst in years. The pundits were talking recession and bear market, only to experience a head-snapping rebound. Then, during the Brexit vote, the stock market fell 5% in two days, which was seen as another indicator of recession. But, it turned out to be a great buying opportunity, like every sell-off since March 2009.

The better strategy for most investors is don't sell. Some sort of correction is inevitable but no one knows for sure when it will happen and few have the discipline to take advantage of the situation.

The reality is that things look pretty good.  Earnings are strong (even the political opponents of the tax cuts are saying it will likely lift economic growth for at least the next couple of years).  Unemployment claims are low (lowest since 1973). Payrolls are growing at a robust pace. Consumer debts remain very low relative to assets.  Monetary policy isn't remotely tight.  Banks appear to be in solid financial shape and deregulation is going to increase their willingness to take more lending risk. Bottom line: This is not a recipe for recession.

(Source: Monday Morning Outlook.  To read the entire article click here.)

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