Finally, somebody burped the baby....and oh what a relief it is. We are seeing the first healthy pullback in stock prices in more than a year. It is well within the range of normal and it is well overdue. (See my January newsletter on our website)
So what is happening? What has changed? Nothing really....except the passage of time and the release of ever more positive numbers on the economy and employment. Remember the rule: markets tend to precede, they do not follow the economic indicators. By the time data shows we are in the middle of a recession, the market will have already bottomed out and begun its recovery. In a similar way this bull market has risen impressively in advance of very impressive economic news. At this point, although the economic numbers show great strength, the market price already reflects that. Hence we've said that we saw few bargains out there...and a good correction seemed overdue.
I know there is much jabber in the news, with words like rout, collapse, panic, meltdown and so forth. But that means virtually nothing. This is routine stuff. Can stocks go lower? Absolutely....quite a bit lower. But the Dow would need to lose another 3,000 points just to return to the record high of 20,000 it set at this time last year....and folks were quite pleased with that. No one knows what shape things will take. So, you might be asking, why don't we just get out of the water till the storm passes? Because, despite how good that sounds, it doesn’t work. It is a recipe for failure and frustration. Only a rookie, a gambler, or a huckster will seriously advocate market timing. Seasoned investors know better.
Keep in mind also that underlying company profits don’t decline when stock prices drop. You still own profitable businesses. You still collect the same dividends.
We’re attaching a pdf with this audio. It can augment what I’ve said. We are always here for you. Please call or email if you feel the need.