Another Full Correction Mode
Here we go again, with the stock market in full correction mode for the second time in 6 months. The market is trying to sort out its concerns over the slowdown in China, weak oil and commodity prices, and concerns about the Fed’s monetary policy.
However, an analysis of current economic data suggest no recession on the horizon, regardless of what the headlines are saying. Therefore, now is a good time to rebalance your portfolios and increase the equity share to bring it back to the suggested allocation.
Regarding China, its growth is slowing, but not dramatically. For some time now, the government has been shifting the focus of their economy from heavy industry to the Services Sector. The concerns about economic difficulty began around 2011, so this slowdown should come as no surprise.
Regarding oil, are low prices a buying opportunity? If you have a time horizon of several years, yes. Oil at $25 to$30 a barrel doesn’t really work for the Saudi economy. They need oil at about twice the current price to balance their economy. They are willing to take a short term hit to affect the major global oil companies but for how long? Eventually, things will change.
If the economy does turn soft, the Fed can take back their ¼% rate increase, and reduce the rate they pay on reserves even more. If oil prices recover, we may have seen the low in equities.
In spite of the short term market volatility, longer term holdings have traditionally rewarded investors. After all, you shouldn’t be in the market with “short term” money. Market corrections are to be expected, and are a normal part of the cycle. Stay diversified in your portfolio… this will cushion the blow of a retreating market. These market corrections are opportunities to buy, not sell. If you sell at the bottom, you miss the subsequent rebound….which historically has been fast and robust.
Bear Market Strategy
Given the worst case scenario, the best Bear Market Strategy may be to remain 100% invested. If you sell now, besides selling at a low point, how will you know when to re-enter? History shows us that markets tend to change direction quickly. And you may miss a good chunk of the market’s recovery.