I pose the question because we investors have been wondering how long the correction would last from the very start. The desire is to get it over with quickly, like ripping off a band aid. In reality, it’s seldom like that. The correction is already over 3 months long and brought an 11% decline to the S&P 500 at the February lows. That was a pretty good shakeout which cleared out the excesses. We’ve stated time and again how healthy Market corrections are, calling it Market Medicine. The thing is, you never know the correction is over until it’s well in the distance in the rearview mirror, but we’re always studying signs. The recent price action has been comforting. We’ve been seeing higher lows, which is a good start. Ultimately, it takes higher highs for the correction to be officially over. There is a ways to go on that front.
Many on the Street are making the claim that the correction is indeed over. We aren’t so sure, but things have improved significantly through the process. When the herd starts claiming that the bottom is in, the Market has a way of reversing. That said, the S&P is at 3-week highs, breaking the downtrend line that dates back to the all-time highs in January. That is considered a positive technical development, and suggestive of further gains ahead. We know all too well, the Market can giveth and taketh away.
Things remain quite good under the hood. Earnings have proved strong while global economic growth has been accelerating. Interest rates and commodity prices are higher. Demand for basic materials, particularly Oil, is climbing, and that means growth. Market leadership has shifted to Energy and Financials, with signs that Industrials and Health Care could soon join. That would be very bullish indeed. Tech looks like it needs to correct more after the monster multi-year moves. Tech is the wildcard in the equation.
We don’t believe that the correction is quite over yet, but are getting more confident that the lows are in. Our sense is, 6 weeks from now, the uptrend resumes. Until then, keep those belts buckled and suspenders tight. Even when this correction comes to an end, the volatile price action, we believe, will not.
Have a nice weekend. We’ll be back, dark and early on Monday. Happy Mother’s Day!