The Market Rebounds: Is the correction over?

Posted by on Mar 18, 2016 in Faith in the Future, Serious Money Talks, Stock Market | 0 comments

You may remember how the market began 2016. I used the word “dreary” in my newsletter of January 16, 2016. It is now two months later and we are witnessing a big rebound in the market, such that, as I write, the market has erased its entire negative performance for the year and we are now in positive territory for 2016.

I ended my January newsletter with three lessons that I have learned during my 35 years as a financial advisor, lessons that I am pleased to repeat.

  • First, corrections and Bear Markets do end;
  • Second, declines are therefore always temporary; and
  • Third, the proper strategy is to remain fully invested.

Let’s take a bigger-picture look at recent market conditions. I think this will provide additional context for us as we think about the rest of 2016 and the years beyond. It is fair to conclude that the big leg of the Bull Market that began in March 2009 topped out in July 2015, after gains in the S&P 500 of 200%+*. That means July 2015 would market the beginning of our current market correction. What has happened in the 20 months since then?

July 20, 2015 to September 28, 2015: The S&P500 drops 8%

September 28, 2015 to November 3, 2015: The S&P500 gains 12%

November 3, 2015 to February 12, 2016: The S&P500 drops 12%

February 12, 2016 to March 17, 2016: The S&P500 gains 12%

What is interesting about this up-and-down pattern is that it is conforming to conventional wisdom about market behavior during presidential election cycles. It is thought that, due to the uncertainty that typically accompanies an election cycle, the market does not develop a solid, long-term trend. Instead it goes up and down until the election results are thought to be known or completed. Having said that, though, I must say that I would not rely on this (or any) conventional wisdom, since conventional wisdom works only unless it doesn’t work.

Thus, it is possible that our current rebound will continue to gain ground until it rallies into the next leg of the Bull Market. This would be fun and exciting to watch and be a participant.

However, it is also possible that we are going to be tipping out this current rebound soon, and then give back these recent gains. I do not (nor does anyone) have the ability to know now what will happen next.

I do know that if the latter scenario occurs my advice to all of our clients will be simple, and the same as it was in January and repeated above:

  • First, corrections and Bear Markets do end;
  • Second, declines are therefore always temporary; and
  • Third, the proper strategy is to remain fully invested.

** Note: market performance data from The Serious Money Investor

 Jeffrey Ross

Registered Investment Advisor

The Planner’s Edge


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