From a high on January 3, the S and P 500 has fallen 13% through Friday—tripping the 10% correction threshold and it remains unclear whether the market has found a floor.
History shows that corrections in volatile election years—as this one promises to be—are often steeper than 10%. But absent a recession, corrections tend to be good buying opportunities.
However it plays out, the current unpleasantness is a reminder that stock market corrections are a fact of investing life. The time between corrections of 10%-plus in the S&P 500 is 410 days, on average, according to investment research firm CFRA. As of February 4, we’d gone 635 days without one.
It was past time for a little rain to fall. On the plus side for the economy and financial markets is a pile of cash on corporate and household balance sheets that has built up during the pandemic. According to BofA, U.S. consumers and corporations hold a record $19 trillion in cash, up 35% since 2019.
Still, the base case for markets is for slowing economic growth, significant inflation and more muted returns. Prepare for more volatility, says Katie Nixon, chief investment officer at Northern Trust Wealth Management.
Companies that exceed profit expectations with the ability to pass on price increases are being richly rewarded; those that miss projections are punished severely.
Meta Platforms (the old Facebook) lost more than $230 billion in market value in one day following underwhelming earnings—the largest single-day drop in market value on record, according to Nixon. The next day, Amazon logged the largest one-day gain in market value: $191 billion, after its earnings report.
Since 1950, the 21 market corrections that have taken place without a recession have posted average declines of 15%, according to Goldman Sachs research. But corrections without recessions have tended to be good buying opportunities, even when you take the plunge before the trough.
Goldman is advising clients to focus on high-quality stocks—those with strong balance sheets, high profit margins and reasonable valuations. Companies Goldman says fit that rubric include health care firm Moderna.
Either way, with the recent invasion of Ukraine, increased supply chain issues, rising inflation, shaky stock indexes, and even more potential instability around the corner — it’s clear we are in unprecedented times.
An already jittery market has become even more nervous. And while many investors can indeed "keep calm and carry on," others would prefer to feel a little more in control.
That's why we’ve enlisted the legendary Gary Shilling to take time away from his regular appearances on CNBC, Bloomberg, and other major media outlets — and personally present his insights and tools that can address these important topics:
What even the smartest wealth managers often miss about the difference between volatility and risk
A powerful example of a model portfolios that helped minimize risk and exposure to asset classes under fire
DANGER SIGNALS: how risk signals and metrics like drawdown, Sharpe Ratio, tracking error and others can enhance performance
Are risk scores reliable? Here’s what most experts won’t tell you
Are 60/40 portfolios dead? This is what the smartest managers are using instead
The near-term outlook for oil and how it will impact other investments
Are we headed toward a bubble or even a full-blown recession? Get Gary’s perspective (along with potential investing strategies to cope)
With changing political climate and economic uncertainty for the rest of 2022 and beyond, we must be prepared for major shifts.
This event will ensure you maintain your role as a competent authority on this important topic.
Gary Shilling Demystifies Market Volatility and Risk will be held on March 29th at 11 am PDT / 2 pm EDT. It is free to attend, however, space is limited, Program moderated by Scott Martin, Managing Editor
