Market Correction

Breaking in from the land of sun and surf....Actually, I'm back in the office today but out until Monday.   More on that tomorrow.

Markets have gone into correction mode in the past week, with US equities losing about 3% from their highs.  The proximate cause cited for this has been a dramatic rise in interest rates resulting from a belief that the Federal Reserve will begin tapering bond purchases in September.  Add to that concerns over a looming debt ceiling crisis, the chaos in Egypt, uncertainty over the upcoming German elections, etc.  

Now here is how we see it.

-All of these concerns are valid but already known in the markets.  They are the excuse for profit taking after an uninterrupted 9% rise in stock prices.  

-Economic data is still supportive of a US economy that is expanding.  The only current debate is over the pace of that economic growth.  Expansion will provide a back stop to stock prices at some point.

-Markets are in the heart of the summer doldrums.  Nothing of economic consequence will occur between now and Labor Day.  The only thing that could stir the pot between now and then would be an unexpected outside event such as a major hurricane or a foreign crisis.  The Atlantic is pretty quiet now so it is likely that we'll have to focus abroad for something that roils stocks.  

-Between now and mid-October is statistically the weakest point of the year.  Historically September is the worst month for stocks.

-There is support for the S&P 500 around 1615 by our work.  Stocks are currently overbought in both the intermediate and longer term range based on the indicators we follow.  They are short-term oversold so some kind of short term market bounce could be expected.

Back to a regular summer posting schedule next week, Tuesday.

*Long ETFs related to the S&P 500 in client and personal accounts.