I had to laugh this morning when I read Eddy Elfenbein’s commentary on the recent market correction:
“The vicious bear market that rocked Wall Street for a full two weeks has finally come to an end. Measuring from close to close, the S&P 500 plunged for a massive 3.94 loss between July 24 and August 7.”
He is correct. As I discussed recently, there has been an ever DECREASING rate of corrective actions in the markets over the last couple of years as the Federal Reserve has been heavily engaged in accommodative monetary interventions. To wit:
“There is an interesting phenomenon occurring in the financial markets that absolutely, positively, will not last indefinitely – the ‘Giant Shrinking Correction.’ The chart below shows the S&P 500 (weekly closing data) since the beginning of 2009, with all relevant corrections identified in terms of percentage.”
As a reminder, this kind of market action is neither normal or healthy longer term and has only seen near historical major market peaks. Of course, timing is everything.
With the current influx of luqidity coming to an end in October, combined with a plan to start to increasing interest rates in 2015, the Fed has clearly begun to signal the end of 5 years of ultra-accommodative policies. The question that remains to answered is whether or not the economy is actually strong enough to removed from “life support?”
This weekend’s “Things To Ponder” is just a smattering of interesting articles cover a wide range of topics that I hope you will find interesting, informative and contemplative.
1) The Market Is Richly Valued – Should You Worry? by Jeremy Glaser via Morningstar
“It’s one thing to say that the market is richly valued relative to historical standards. It’s a completely different thing to say that this means stocks are going to decline over the next one year, three years, or even five years. As I mentioned, in 1996 and in 2002, the S&P 500 was valued at similar levels and went on to have a great run over the next five yearsuntil it ended in a crash. So even over a time period as long as five years, saying that the market is relatively richly valued relative to history doesn’t tell you much about what stocks are actually going to do in the near term.”
