S&P 500, NASDAQ, DOW: Possibility of a Market Correction: Guest Post by Virginia Wirasnik

 Market corrections are unavoidable aspects of the stock market that although sound scary, may be a “sigh of relief”. A market correction is a decline of 10% or less that occurs in the stock market in a short period of time. When the stock market is increasing, as it has been recently, the prospect of potential profits may be too enticing for investors and eventually lead to stocks rising above their actual value.  The correction acts as a breath of fresh air for the market and allows for a return to stability.

The rally of the market currently has some wondering if a correction is in our near future and if it is, are investors ready? According to Alan Valdes they are. Valdes, the director of floor operations at DME Securities stated, "The Fed's pumping $85 billion a month into the market so there's no way for it to go down, but everyone's got their finger on the trigger because they don't know when this is going to turn." (CNBC) As you can see in the chart to the right, the DOW has reached all time highs, breaking 2007 records. In the past, whenever all three indexes have been on an upswing and excelled past their one-year peak line there has been a slight correction. Investors recognize this and understand the correlation between market highs and the necessity of a pullback therefore leaving them waiting for the inevitable.

Nouriel Roubini, the economist who called the crisis in 2006, expects the market to slow down in the second half of 2013. “I think that the market is going to be surprised by how much the U.S. is going to slow down, even compared to last year,” Roubini said, indicating the market could correct “somehow” and lead investors to be disappointed. (Market Watch Blog) Contrary to Roubini, Kenny Polcari, floor director of XYZ, believes there will be a 5 or 6 percent pullback. However, the pullback will be met with real demands, suggesting 2013 will still end high.

It is difficult to project what the market will do in the future and is best left to the professionals, however, here is my prediction: there will be a correction within the next three months around 4 to 6 percent and it will be the most rapid correction in history. The previous shortest correction lasted only 15 trading days in July of 1950.

If you are an investor, my advice is to listen to a reputable investor’s wise words. Warren Buffet stated "Be fearful when others are greedy and greedy when others are fearful."

Tweet me your opinion and/or predictions, @jennaraz and make sure to hashtag #marketcorrection. 

No comments: