Not a whole lot has changed since the last update post. The lows at 1812 on the S&P 500 has held so far and the market has retraced back into the lower of the two resistance levels that were outlined. So far the US stock market is down around 15% from its 52 week high, but it, along with the rest of the indices of the developed world, are below their 200 day moving averages. It’s a sign of caution and also signals a real possibility of some further downside to match the size of the 2011 correction (20%).
China’s stock market is down 49% from its 52 week high.
Europe is down 23%.
And Japan is down 24%.
So the US continues to outperform the rest of the developed world, but it’s not certain whether the others will continue to drag down US stocks.
Most economic indicators continue to show slow expansionary readings and financial stress indicators show below average readings. All in all the odds appear low that the US will go into recession in the near term.
Another key event happened last week as the Bank of Japan introduced a negative interest rate policy (once again). Along with this, the yield on 2 year treasury bonds have fallen precipitously so far this year. One viable interpretation is that the market participants have readjusted lower their expectations of potential future fed funds rate hikes (at least for this year). This certainly bodes well for stocks if this turns out to be true.
We must remember that market corrections are a relatively frequent event. One of the reasons why investors get the returns they do in stocks is because they can be very volatile at times. The US markets have averaged a 20% correction every three years or so, and it’s been 5 years since we have had such an occurrence.
To be a successful investor you must accept that there are certain things that are out of our control. Low probability events can happen, especially when markets are all trading below their 200 day moving averages.
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