Equities --- time for a short term correction?
On February 19th, just a couple of weeks ago, there was a post here entitled "The coming equity market surge". It was an optimistic full year outlook based on the underlying vitality of the U.S. equity market that would be more visible as the year progressed and as government and weather released their grip on the economy.
That view is still subscribed to here, but with the carefully if somewhat randomly chosen stocks watched most closely here (there are quite a few, especially small caps, that are presumed to be below the radar of many investors), the surge has already been taking place over these last two weeks. Stocks are levitating while economic news is still not so chipper. Geopolitical news is fraught with growing risks. Emerging markets stocks are still in the crapper. Taxes for 2013 not already paid will be due in April as well as estimated tax for the first quarter of 2014(liquidity need). Obama's budget proposal announced two days ago is ludicrously anti-big business, especially multinational businesses, and is even anti-middle class on the margin. It will never pass and was not seriously meant to pass but is indicative of his views. Now it is just a marker for the mid-term election campaign, solidifying his base.
All of this suggests that a correction in the equity market could happen sooner rather than later. A correction of 5% would be healthy as it would shake out some investments that have become overvalued and give a pause to enthusiasm that may not be fully justified. A market that goes straight up builds the potential to be one that goes straight down. A healthy correction would provide entry points for new investors. A zig zag pattern up is one that gives pause to evaluate investments and is not just built on momentum. A correction of 10% would be frightening but easily survivable for those not on margin, and it would be erased over time by the themes postulated in the prior optimistic post of 2/19 previously mentioned.
Of course, one could only be positive about the rise in equities now taking place, but here there is a thought to look at a rebalancing of accounts(to where God only knows), maybe only for the near term, maybe longer term. That is especially true for non-taxable accounts like IRA's where losses have no value.
May the good times continue to roll and may we not be naive. Is that a tightrope that one can stay on?
That view is still subscribed to here, but with the carefully if somewhat randomly chosen stocks watched most closely here (there are quite a few, especially small caps, that are presumed to be below the radar of many investors), the surge has already been taking place over these last two weeks. Stocks are levitating while economic news is still not so chipper. Geopolitical news is fraught with growing risks. Emerging markets stocks are still in the crapper. Taxes for 2013 not already paid will be due in April as well as estimated tax for the first quarter of 2014(liquidity need). Obama's budget proposal announced two days ago is ludicrously anti-big business, especially multinational businesses, and is even anti-middle class on the margin. It will never pass and was not seriously meant to pass but is indicative of his views. Now it is just a marker for the mid-term election campaign, solidifying his base.
All of this suggests that a correction in the equity market could happen sooner rather than later. A correction of 5% would be healthy as it would shake out some investments that have become overvalued and give a pause to enthusiasm that may not be fully justified. A market that goes straight up builds the potential to be one that goes straight down. A healthy correction would provide entry points for new investors. A zig zag pattern up is one that gives pause to evaluate investments and is not just built on momentum. A correction of 10% would be frightening but easily survivable for those not on margin, and it would be erased over time by the themes postulated in the prior optimistic post of 2/19 previously mentioned.
Of course, one could only be positive about the rise in equities now taking place, but here there is a thought to look at a rebalancing of accounts(to where God only knows), maybe only for the near term, maybe longer term. That is especially true for non-taxable accounts like IRA's where losses have no value.
May the good times continue to roll and may we not be naive. Is that a tightrope that one can stay on?
posted by John Borden at 10:46 AM
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