February 09, 2018
Finally, A Market Correction!
January gave us one of the strongest rallies for the month
on record. The strength of the rally left many worried this was the blow off
stage which is typical at the end of bull markets. No one knows with certainty
whether this is the beginning of a bear market or just a correction within the
bull market. What I have learned over my 38 years in the market, is corrections
always feel like a bear market! However, it should be comforting that most
corrections are more violent in the pullback than what is typical in the beginning
of a bear market.
Typically, the beginnings of a bear market are reflected in a
rapid rise in the dollar for its perceived safety. Thus far, the dollar has
been relatively stable. We usually would be witnessing sell offs occurring in
the corporate bond market reflecting the fear in the stock market. Thus far,
the corporate bond market is stable. Corporate earnings are rising and not
falling which reflects a healthy economy and an optimistic consumer. GDP growth
has been in excess of 3% the past several quarters and seems to be gaining
momentum, which is not typical of the beginning of a bear market.
In conclusion, I recall a recent study performed by a major
mutual fund company on the performance of their mutual funds vs. the
performance of its shareholders invested in those funds. Many of the
shareholders annual returns were less than the return of the fund they were
invested in. The reason behind this was too many of the fund shareholders tried
to time the ups and downs of the stock market by moving in and out of the fund.
They overwhelmingly underperformed the fund's performance had they simply remained
invested in the fund over the long term. History has proven it is fruitless to
try and time the market. Stay invested in quality companies and use this pullback
as an opportunity to buy quality companies at cheaper prices.