Generally speaking, the investment markets usually incur a correction once they have had an extended upward move. These corrections often occur without warning, and the markets sometimes take their cue from the most unlikely source.
Since March 9th of this year, the S&P 500® is up significantly, just above 57%. This is an incredible move and was accomplished primarily without a correction. This is the reason every financial news network is talking about the inevitable - the pending correction.
Large money managers also use corrections as a point to move additional funds into the markets. When something keeps going up and up, the opportunity to step into the market does not present itself. Due to the significant declines occurring in the second half of 2008, as well as the first quarter of 2009, a tremendous amount of cash was pulled from the markets heading to the sidelines or where ever the safest place was thought to be safe.
As this money moved out of the markets, this was a contributing factor in part to the declines. However, it may also be a contributing factor as to why the correction has not occurred as well. Investment managers are evaluated on their performance. This is clearly a worthy benchmark. Unfortunately, the timeframe is not the three or five year window, but the current quarter and sometimes the current month. These shorten timeframes can cause significant moves of assets across the investment allocation.
Since the S&P 500 has continued to move up largely without a ten percent correction, it appears many of the managers sitting on the sidelines with large cash positions have been forced to chase the returns and move into the markets. History may show these moves into the markets prevented the correction everyone expected.
The correction will occur. The million dollar question is when. The trigger may be when a leading company reports disappointing revenue or earnings, or it could be a report of action from Congress. As I stated in the beginning, it is often difficult to know what the trigger will be until it has already occurred.
My expectation, based upon the facts as they are this moment, is the correction is most likely to occur once we are into the Christmas retail season. That’s when the strength and temperature of the consumer can truly be determined. This comment comes with a warning, however. The investment markets do not always move in predictable manners, and thus anyone claiming to ‘know’ when the correction will occur is only guessing.
For help with managing investment assets, contact me at Quality Financial Concepts or one of the other Certified Financial Planners in our area. To continue a personal quest for education, you can also view our website, www.goqfc.com. There you will find articles on a variety of topics, on-line seminars, calculators, as well as a host of other tools all available for free.