How quickly things change. After two years of unprecedented and relentless upside action, the month of February has brought a swift correction leaving market participants with a lot more questions than they had just two weeks ago. Has this market finally topped? When will the selling stop?
Why is the stock market selling off so quickly? Should I sell everything and head to cash?
The market collapses in 2000 and 2008 created a panic that caused investors to sell first and ask questions later. It didn't help when one of the more widely followed market pundits told the World they should be selling everything and hiding that money under their mattress for at least 5 years.
That ended up being the worst thing you could have done at the time. Since the lows in 2009 the market has soared. Anyone selling during that panic has missed out on a once in a lifetime bull market. If the market dropped 50% today, a collapse that would make Black Friday 1987's collapse look like a garden variety correction, the S&P500 would still need to drop another 50% just to get back to the 2009 levels.
If that type of plunge were to occur, I think we would have more to worry about than the size of our investment portfolio.
This tweet from Chris sums it up rather well:
If stocks tank for 1-3 more days, and then go on to post 50% gains over the next 2 years, it would put the 1-3 days into a different perspective (see table).
— Chris Ciovacco (@CiovaccoCapital) February 8, 2018
Those with a short time horizon may view market declines from a different perspective, with asset protection being the main focus. Those with a longer time horizon should view sharp corrections as an opportunity to grab more stock for less money.
US workers, on average, contribute $6500 per year to 401(k) plans, or roughly one third of the annual limit.
This is tragic considering that TIME trumps both skill and even financial literacy when it comes to returns.
— Downtown Josh Brown (@ReformedBroker) February 9, 2018
On the short term time frame S&P500 futures look to be coming back to the lows from earlier this week. That would be the line in the sand support.
The VIX spike has never lasted very long. And each spike in the VIX has ultimately turned into a great buying opportunity for stocks.
A pull back like we have seen recently is a great way to sober up market participants. Those riding the endless bet against volatility got a dose of reality. The market is back. It's moving lower and higher. Clearly that will remain a theme in 2018. Volatility is back. However the overall long term trend remains up.
After rising $125 in two years, the past week and a half has seen the $SPY lose almost $30 in value. That puts into perspective the move we have seen recently, and the strength of the rally since the lows in Feb 2016.
Up $125 over 2 years
Down $30 in 2 weeks.
The bulls are still winning the long term battle. The trend remains to the upside. However the market didn't drop 10% for no reason. Clearly cracks are forming. Is there irony that these cracks came after Yellen left?
A confirmation of a possible trend change in this market won't come, at least in my opinion, until this happens ---->>>
As such, this long over due correction, has a very good chance of becoming just another tremendous buying opportunity for stocks.