Don’t Panic But the Correction Has Just Started

Shutterstock photo
Don't Panic But the Correction Has Just Started

(New York)

The market fell another 4% yesterday, pushing all the major indices into a correction, meaning a 10% drop or more. However, the reality is that this really isn't much of a correction, at least yet. Looking at a number of the most common valuation metrics, such as P/E, CAPE, dividend yields etc, stocks are still very expensive. Even considering this fall, they are still up 19% over the last year. That means it would take much a more substantial fall to push them into the territory where they could be a buy on a "value" basis.

FINSUM : A few thoughts here. Firstly, stocks are only a buy right now if you think the market is taking a break before heading higher. Well, that is our view. The market is all concerned that growth is too good, which through some mechanisms (like the Fed) will lead to a recession. In early 2016 (the last time a correction happened), the market was worried about a dismal economy. That time the fears were wrong, and we think they will be this time too. This has been a middle of the road recovery for almost a decade, and we think it will revert to that mean, avoiding investors' worst nightmare-growth! (as if that is such a nightmare).

  • stocks
  • correction
  • dow
  • S&P 500
  • valuation
  • volatility

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Stocks

More from FINSUM




Research Brokers before you trade

Want to trade FX?