So what about this stock market situation?

Posted on: 10/16/2014

Vern Sumnicht, CEO and Founder of iSectors

By Vern Sumnicht

It’s obvious that the stock market looks pretty weak right now–this seems to be a pretty common occurrence every September-October period. It’s impossible to know where the next few months will leave us… everyone is “concerned and confused.” I can’t tell you we aren’t going lower, but I do believe the Fed will continue to support the market by keeping interest rates low as long as needed (they’ve spent too much at this point to quit now). It has been an unusually long time without a real correction so I’m not surprised at this one. Although corrections can easily be 20% for no reason at all, while we have low-interest rates (easy money), it would be unusual to see even that much of a downside. The problem is, I think the market will go higher after the correction and so if you get out… when do you get back in?

I’m suggesting we stay the course, but I’m aware corrections tend to end with a blow-off, meaning the Dow goes down 400, 500, 600 points in a day; maybe today was the day. A month or more of up, down, up, down, then a blow-off period to end it. However, we need this correction before the market can really go higher from here. Ultimately, this secular (long-term) bull market will end when everyone is all in. There is still too much money on the sidelines, and too much worry. Bull markets don’t typically end when the Fed is accommodative with low-interest rates, worried investors, and when there’s a lot of cash on the sidelines. Remember, don’t get too caught up in any short-term high return numbers or low return numbers; they aren’t reflecting real market value. Over time, corporate earnings drive real value and overall I think those earnings are doing well.

If all the current world affairs and fear (Ebola, riots in Hong Kong, Isis, European issues, etc.) are causing this market to go down, it could turn back up quickly. Then this is a short-term buying opportunity. Usually, investors realize pretty quickly that the U.S. is a safe place for money and we see a quick turnaround. I’m not sure, but I don’t think this is the real cause of the correction. It may have triggered it but, we were way over due for an old-fashioned healthy correction.

I would like to hear what you have to say…leave your comments below!

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