Correction…But Bear Market Unlikely
Ryan Lewenza, CFA, CMT, Private Client Strategist, Raymond James
§ Understandably, the recent weakness has led to some consternation among investors with the S&P/TSX Composite Index (S&P/TSX) experiencing triple-digit daily declines and the Index off 11% since its September highs. However, it’s important to stand back, reflect and gain some perspective. Pullbacks (5-10%) and corrections (10-20%) are normal and even healthy in bull markets. Based on our analysis we have found that on average the S&P 500 Index (S&P 500) experiences three pullbacks and one correction each year.
§ Three central factors have led to the recent market declines including: 1) the potential end of Quantitative Easing (QE); 2) expectations for weaker global growth; and 3) escalating concerns over the spread of the Ebola virus.
§ We believe the North American economy and equity markets are in a transitionary period, from a Fed liquidity-driven economy/market to an economy supported and based on fundamentals. We believe that this transitionary period, while difficult in the short-term, will ultimately create a fundamental backdrop for equities to move higher in the coming years.
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