Well, what we have here is all the makings of a small correction, and frankly, I think it’s healthy.
When earnings seasons are over, the stock market tends to focus on the negative news in the marketplace. The good news is almost always regulated to interest-rate reductions by the Federal Reserve (quite rare) and earnings seasons (only four times a year). In the absence of good news, the stock market worries.
Right now, I suppose there is plenty to be worried about. Inflation is a real risk and so are interest-rate hikes. The price of oil is still quite high by historical market standards. Gasoline prices are high. Raw material prices continue to climb, making everything we buy more expensive. Real estate prices are dropping. Consumer confidence is weak.
So, there is a lot for the stock market to be worried about. Add some big gyrations from Asian stock markets, and you’ve got a correction.
But, this is healthy for the long-run trend of the main stock market averages. The S&P 500 and Dow Jones Industrial Average just hit new record highs, so we need a cooling-off period, and now is the perfect time. It’s between earnings seasons, so there isn’t any news from corporations to go with.
I think the next three months are going to be tough for stocks. As I wrote before, this stock market is looking to the future, and that future offers stronger economic growth than is currently being generated. This means that the underlying trend to the stock market is still positive over the medium term.
With a broad market pullback in the works, I wouldn’t be in any rush to take on new positions over the near term. I don’t think you’d get much of a tailwind behind any new stock purchases.