Why There Was No S&P 500 Stock Market Correction July – August 2014:
It seemed like all the bears were getting ready to celebrate….but not so fast. The most anticipated correction in history never occurred as the ‘most hated’ stock market rally in history continued. Against the backdrop of Russian troops at the Ukrainian boarder, U.S. airstrikes in Iraq, Argentina’s banks, Ebola outbreaks and more, a couple of weeks later – it’s back to bullishness as usual. Buying on the dip was still a good strategy as stocks began to become more attractive and key sectors like small caps and social media regained momentum.
The S&P 500 hit an all-time high last week as investors jumped back into risky assets while markets continue to be in the ‘sweet spot’ where low inflation and marginally good economic news keep the Fed at bay. The brief pullback was a stellar opportunity to look for new entry points for equities and spread risk across sectors as an asset rotation which began with small caps continues. Even with low volume, buyers weren’t afraid of the possible increases in volatility as Friday afternoon news spooks and largely 3 weeks of negative press didn’t stop bulls from gobbling up shares.
Is a correction coming? Of course – but who knows when…. A bear market will also be on the way but both should be less anticipated and profits should be falling, peaked and- not rising. The small cap sector hasn’t taken the lead but the best market to watch is mid caps as the crowded small cap trade is overhyped. The NASDAQ is up nearly 13 percent for the year and semiconductors are up 20 percent this year. There is no reason to be bearish yet and absolutely no evidence that the Dow won’t hit 18,000 this year.
A quick look at the S&P 500 shows the overall market is bullish and pullbacks should still be considered as buying opportunities. Doing nothing since the last article posted here would have been profitable but buying on the dips had even higher returns. Bonds are in an uptrend which will keep yields low and do the work for the Fed without changing its QE course. A slight support test would be healthy for the markets and a possible distribution day in the near-term may be another opportunity to find good buys.