…For Now
The equity market has rallied relentlessly for 12 of the last 14 months. But now it is facing headwinds that perhaps will be cause for another equity correction. How deep, no-one knows. During this 14 month rally, corrections have occurred just as the quarterly earnings season winds down, which is precisely where we are right now. Will this pattern continue?
Make no mistake about it, based upon the last 10 days or so, since two Friday’s ago when the Goldman Sachs charges were announced, volatility is back! The Dow Jones Industrial Average ended the week down 196 to 11,009, and the 1.8% loss was its worst since late January. The S&P 500 Index had only its third loss in 12 weeks, losing 31, or 2.5%, to 1187, but is still up 75% from its 2009 low. The Nasdaq Composite Index snapped an eight-week winning streak and closed down 69, or 2.7%, to 2461, while the Russell 2000 skidded 25, or 3.4%, to 717. For the most part, 20-day moving averages of the major equity indices have been breached, but 50-day moving averages remain below their respective indices. Despite the weak finish, stocks ended April with broad gains totaling 1.4% for the Dow, 1.5% for the S&P 500, 2.6% for the Nasdaq and 5.6% for the Russell.
Oddly enough, this volatility in equities comes as the news for the economy and companies in general, has been good! This past week it was reported that the economy grew 3.2% from January to March, and has expanded for three straight quarters, and that consumer spending jumped 3.6%. Buy the expectations (rumors), sell the news?
This past week, the FOMC met and released their “minutes”, stating that the economy is improving, but that they expect to keep interest rates very low for an “extended” period of time.
Look at the pattern of corrections in the equity markets beginning after the 3rd or 4th week following the end of the quarter. You may want to consider putting your sell stops in place, if you have not already.