Correction? What Correction?

February 21, 2014 at 3:33 am 1 comment

In January, the markets appeared to be finally heading in the correction territory, which in Wall Street speak, means 10% decline from the top.  Such corrections typically occur at least once a year, and having gone for more than two years without one, we were definitely overdue.  I was hoping it would actually happen, for two reasons: one, to be able to put the checkmark (ok, just kidding), and two, to buy some good companies at a discount.

But that was not to be.  After declining just over 5%, S&P 500 has recovered most of the losses and is once again flirting with all-time highs.  Recent earnings season supports the latest rally.  Indeed, some 71% of the companies beat earnings estimates and 66% beat sales estimates, both figures higher than average.  Earnings growth was also very robust at 9.3% compared to 6.6% one year ago.  Not that you would hear financial media cheering these achievements.  Good results are boring, it is fear that sells well.

As always, where we go from here is anyone’s guess.  We may well hit new all-time highs, or we may finally go though that long-awaited correction (I am confident that we will definitely do that at some point).  The market and economic fundamentals have been favorable to equities for quite some time and still are.  There are lots of cash on sidelines, both from individuals and from companies.  Many investors remain very skeptical of the stock market.  The U.S. economy is accelerating, and even Europe seems to have emerged from the debt crisis.  Interest rates are very low.  Even though market valuation is slightly higher than average, there are not many attractive alternatives to equities at this point.

Entry filed under: Market Conditions.

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1 Comment Add your own

  • 1. Gary Mazo  |  February 27, 2014 at 8:38 pm

    Thank you, Dr. Shirman! As usual a very thoughtful and informative post!

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Blog Author

Leon Shirman's long-term investment philosophy is summarized in his book, “42 Rules for Sensible Investing”, also available from Amazon.


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