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Why a stock market correction should be welcome... or not

  • So after the Dow's nearly 500-point two-day drop, sending the index down 4.2% YTD, is this the start of the long-awaited correction?
  • That might be a good thing, MarketWatch's Jonathan Burton writes: "Even a year without a meaningful correction is too long a stretch. Investors get comfortable; the market’s proverbial wall of worry breaks down."
  • Josh Brown is disturbed by the lack of tolerance for stock market losses built up during the pre-taper environment, which has fostered an "overly sensitive, emotionally fragile condition" that's unhealthy.
  • But it wasn't just U.S. stocks that got hooked on Fed stimulus; emerging markets around the globe also were lifted, and the Fed's pullback now has investors wondering whether those countries can stand on their own.
  • The Fed’s policy-setting board meets next week, and new chief Janet Yellen is said to be "very careful about disruptions."
Comments (23)
  • june1234
    , contributor
    Comments (2550) | Send Message
     
    happened during a very busy earnings week, also happened following China reporting a bad number ( after an IMF global growth upgrade), and we haven't had a correction for a while . next week is also margin call week. I wouldn't bet against it. bonds are liking it
    25 Jan, 09:15 AM Reply Like
  • Ruffdog
    , contributor
    Comments (1294) | Send Message
     
    If the averages can go down another 5% next week , you would have the 10% correction and we would be off to the races again.
    25 Jan, 11:33 AM Reply Like
  • bbro
    , contributor
    Comments (9448) | Send Message
     
    Money Market + Savings Deposits = $ 9.557 trillion Total Market Capitalization = 19.168 trillion

     

    9.557/19.168 = 49.86%. and 2 year swap spreads are 15.....no major market selloff has occurred
    with a ratio this high and 2 year swap spreads this low....
    25 Jan, 09:21 AM Reply Like
  • dancing diva
    , contributor
    Comments (2501) | Send Message
     
    bbro - what constitutes a "major market selloff'?
    25 Jan, 05:10 PM Reply Like
  • OptionManiac
    , contributor
    Comments (3304) | Send Message
     
    A major sell-off, IMHO, goes beyond the 5% or 10% correction and is based on a deteriorating economy, not irrational fear or profit taking. Hasn't happened yet.....
    25 Jan, 05:42 PM Reply Like
  • Tack
    , contributor
    Comments (12964) | Send Message
     
    OM:

     

    Hey, in today's world we think that 6" of snow and a few cold days is a national crisis, so I suspect that a "major sell-off" will be any amount that frightens folks, probably 5% or more, if today's society's generally wobbly knees are any indication.
    25 Jan, 05:48 PM Reply Like
  • OptionManiac
    , contributor
    Comments (3304) | Send Message
     
    I can't remember if it was the '87 or '89 dump, but I remember a anchorman asking an "expert" how far can the market drop. "Another two or three days like this, then we'll be down to zero."
    26 Jan, 11:22 AM Reply Like
  • Petrarch
    , contributor
    Comments (674) | Send Message
     
    Asset Price Destruction Vortex

     

    ...wait for Financial TV to start branding this stuff. They are way behind the Weather media machine

     

    P
    26 Jan, 02:02 PM Reply Like
  • DeepValueLover
    , contributor
    Comments (8311) | Send Message
     
    An announcement of an upcoming taper and the actual process of tapering aren't the same thing.
    25 Jan, 09:46 AM Reply Like
  • OptionManiac
    , contributor
    Comments (3304) | Send Message
     
    Tapering has already begun.
    25 Jan, 11:09 AM Reply Like
  • DeepValueLover
    , contributor
    Comments (8311) | Send Message
     
    The month isn't over.
    25 Jan, 06:58 PM Reply Like
  • wyostocks
    , contributor
    Comments (7703) | Send Message
     
    Just what we need, the Fed to the rescue.
    Is there anything the Fed can't manipulate?
    25 Jan, 09:54 AM Reply Like
  • bbro
    , contributor
    Comments (9448) | Send Message
     
    NFC playoffs....
    25 Jan, 10:27 AM Reply Like
  • Petrarch
    , contributor
    Comments (674) | Send Message
     
    BBro
    you sure about that?
    I hear Bernanke is a Broncos fan
    P
    26 Jan, 02:03 PM Reply Like
  • Guardian3981
    , contributor
    Comments (1947) | Send Message
     
    What about all the people who claimed the market would be just as high without any QE this whole time?
    25 Jan, 10:10 AM Reply Like
  • sl100
    , contributor
    Comments (110) | Send Message
     
    People need to move into cash or money mkt funds because equities are the risky assets and with such a big run up its time to bail. 401K Holders need to move to Money Mkt funds if they have no choice for cash.

     

    This is just a minor sell off for the mkt to stabilize it needs to get down to more reasonable level as valuations do not support revs/profit or future growth. The mkts been manipulated for so long and people are screaming because it down 2% for the week. The only people who benefit from this game is the 1% folks these are the same folks screaming now on TV so they can sell to 401K holders, pension funds and individual investors.

     

    All moves in stocks like AAPL, GOOG which make up a big chunk of the index in S&P, QQQ etc come in pre mkt hours easy to manipulate. Example GOOG&AAPL mkt cap close to 1Trillion that's why the day in day out people come TV and talk about APPL, GOOG, AMZN though these companies are richly valued. AMZN has never made a profit but it has mkt cap of 200B, APPL is 500B GOOG is 400B. Equities no longer reflect real value of companies. look at GOOG insider sales the past year close 50B in sales. This year alone insider sold close to 100M they know more than anyone else. In case of GOOG it was Fidelity and some hedge funds who move this stock nearly $350 for year end dressing and most of the move came in just few days (1 day move as about $150). GOOG PE sits at 32 which is insane for a large company.
    25 Jan, 10:31 AM Reply Like
  • convoluted
    , contributor
    Comments (1860) | Send Message
     
    When your 90 year old grandmother calls you up and says "sonny, let's short some more of that vix thing, that's the ticket-I got this stock market thing all figured out"- that's your cue to run the other way.
    As Livermore reminds us, the folks of 2014 haven't changed at all from the folks of 1914. There's more obesity of course, and it's probably true that people are hyper-sensitive to an extraordinary range of stimuli-yet wasn't the Age of Anxiety a topic of the early 1970's? Didn't we shuffle under an old, wooden school desk to avoid a nuclear catastrophe?
    To say that people are more mentally fragile now as opposed to anytime within the last 10,000 years, is utter nonsense.
    25 Jan, 10:33 AM Reply Like
  • Tack
    , contributor
    Comments (12964) | Send Message
     
    c:

     

    Too true.

     

    But, what's equally important to note is that ma & pa's control an almost insignificant amount of market wealth, so what they do is near meaningless, not to mention, besides that, that most ma & pa's are nowhere near the market these days, having learned the wrong lessons in 2008 and having stayed in cash the whole way up.
    25 Jan, 12:20 PM Reply Like
  • OptionManiac
    , contributor
    Comments (3304) | Send Message
     
    Sad to see couples who sold everything at or near the bottom and never wanted to invest in equities again. Those near retirement when they pulled the plug will be working forever. I'm a long time, lazy investor who sold next to nothing from 2007 on. Stayed 90% in the market - I'm way ahead of where I was in 2006. But, that's how I played in the 80's and 90's. I did learn not to be stupid picking stocks in the late 90's, the hard way.
    25 Jan, 05:38 PM Reply Like
  • Tommy_Finger
    , contributor
    Comments (320) | Send Message
     
    More obesity?

     

    True, I'm fatter now than I was in 1914.
    26 Jan, 08:12 PM Reply Like
  • Ron Myers
    , contributor
    Comments (256) | Send Message
     
    "A correction should be welcome"...you have got to be kidding me why would losing close to one year's returns be welcome to anyone? And now fixed income is even less attractive as well. Welcome would be for monetary policy to be somewhere near historical norms, so that investors could choose investments based on their risk tolerance, rather than being forced into stocks/high yield by the Fed because everything else returns 0.
    25 Jan, 12:24 PM Reply Like
  • into dark shadows
    , contributor
    Comments (326) | Send Message
     
    If you read the W.S.J. week in week out, you should have noticed that the "Insider Buying/Selling" has gone parabolic (to the sell side) in the past few weeks. I follow this stat religiously. The selling has been massive for the past year, almost no weeks of buying out numbering selling in any sector, NONE!
    But the past 3 weeks have had a first that I have not seen before.
    Billion share selling!

     

    Week ending 12/20/13,
    Technology sector buying;1,381,559
    Selling 1,305,935,848
    I have never seen this level of selling before, not to mention the rest of that weeks massive dump by insiders.
    Wait, it gets better!

     

    The following week, 12/27/13,was not to be outdone...
    Consumer Services, Buying 290,845
    Selling 1,210,655,110

     

    Finance, Buying 16,641,343
    Selling 1,166,685,700

     

    Health Care Buying 3,516,692
    Selling 1,567,381,176

     

    Technology Buying 2,305,331
    Selling 1,744,670,943

     

    And not a billion share sell, but even more amazing,
    Consumer Durables
    Buying 3,490
    Selling 385,093,007

     

    So with all this selling by the people in the know, I don't want to hear the pundits saying how welcome a sell off would be so they could buy in on the cheap. Nonsense!

     

    There is a reason for all the "Buy Backs" of the past few years folks and it is NOT a vote of confidence. It is nothing more that goosing the earnings that have been punk at best the past many quarters. You reduce the shares outstanding and viola, you are able to keep beating the bottom line! But the top line? Not so easy to play games with that one...
    I do not begrudge companies for doing what the Fed and the disastrous policies of Bubble Blowin' Ben have forced them into. But you better be ready for the "Change in Trend" when it is happening. The markets will take back all the gains of the so called "New Bull Market" off the 2009 lows much faster than the steeple chase upward of the past 5 years. The environment we are in is fraught with anti capitalism rhetoric from D.C. and as a country we are in debt past any logical sense(with the debt ceiling coming up again in a few short weeks)..

     

    The secular bear market we entered in 2000 has been witness to one of the most powerful cyclical bull market moves in history,(2009 to present),but that is all we have here folks!
    If Bernanke and the Fed policies were so benign and a salve to the consumer and working man / woman of this great country, why stop with a paltry 85 billion a month? Lets double it and really get the party started!
    NOT!
    The Fed and our Progressive politicians on both sides of the aisle, have destroyed the freest and most open "Free Market System" that has lifted more people out of squalor and misery than any system the world has ever known.
    We have pain ahead, it will not be easy, but the political games and lies need to be addressed and sadly the day of reckoning is fast approaching.
    If you are blessed with KING sized profits, take them!
    God knows the insiders are!

     

    May the good lord watch over this fragile little experiment in freedom / man's self rule we call America
    26 Jan, 08:25 AM Reply Like
  • Tack
    , contributor
    Comments (12964) | Send Message
     
    Insider selling can occur for myriad reasons and has been shown to be little correlated to market moves. Why should it be shocking to see lots of selling when one crosses into a new tax year after a year of 30% gains? This is classic and to be expected.

     

    The only insider behavior that merits attention is insider buying because people only buy for one reason.
    26 Jan, 08:34 AM Reply Like
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