Market Outlook: Something Wicked This Way Comes?
Market Outlook: Something Wicked This Way Comes? |
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Market Outlook: Something Wicked This Way Comes? By John Persinos
Stocks have ventured into correction territory, falling by approximately 10% from their peak in the late days of July. This downturn has been fueled by the resurgence in long-term government bond yields, the horrific carnage of the Israel-Hamas war, and renewed worries of an economic recession. Equity retreats of about 10% or more (the definition of a correction) aren't uncommon and they can be healthy, because they restore equilibrium and provide buying opportunities. But many on Wall Street are suddenly expressing the fear that the correction could be a prelude to a drop of 20% or more, i.e. a bear market. To borrow Halloween terminology…perhaps something wicked this way comes. Have we witnessed a run-of-the-mill correction, or the early stages of something worse? Let's examine the validity of these fears and how you should trade now. Boo! Wall Street's jump scare… In Hollywood, a sudden out-of-nowhere shock in a horror movie is called the "jump scare." (Remember when you first saw Mrs. Bates' desiccated corpse in a rocking chair in Psycho?) Investors were startled out of complacency last week, when stocks fell more than 2% across the board and the S&P 500 crossed the threshold of a correction (see table). 
The CBOE Volatility Index (VIX), which is known as the "fear index," has risen past 20, a reading that denotes greater stress and anxiety in the markets. However, I see glimmers of hope, as strides in inflation control and resilient growth within key areas of the economy provide reassurance that this current pullback will not lapse into another bear market. Read More... |
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