The 10% Correction We’ve Been Waiting For

August 24, 2015

The 10% Correction We’ve Been Waiting For

What does this 10% correction mean? With the markets down 2% on Thursday, 3% on Friday, and 4% today, we thought some (more) perspective might be in order.

It’s easy to be lulled into complacency regarding market volatility considering it’s been 46 months since the last 10% drop. So far in 2015 the S&P 500 has had the smallest trading range (least volatility) from tops to bottoms of any calendar year since 1927.

But now, our U.S. markets could be headed for the worst month since 2009. We, and many analysts believe, we’re overdue for this kind of volatility and, to be honest, have been surprised not to see it earlier.
Here are the reasons Bob Doll, CFA from Nuveen Investments says were in a downturn:

  1. Slowing economic growth globally and specifically in China
  2. Currency devaluations which are economic wars between nations trying to make their exports more competitive internationally
  3. Uncertainty over Federal Reserve interest rate hikes
  4. Investor nervousness after seven years of market expansion
  5. Corporate earnings disappointments

Here are the Reasons Bob Doll, CFA says we’re NOT headed for a longer term downturn, called a bear market:

  1. Improving U.S. economy in its seventh year of expansion
  2. Low unemployment
  3. Low interest rates
  4. Positive housing market
  5. Low fuel prices

We firmly believe this has been an emotional overreaction in the markets. A couple of days ago a financial commentator said, “The stock market is the only place where people run out the door when they have a sale.” We’re sticking around the store to find the bargains.

After months of watching companies trade at prices above what they were worth, the last two trading days brought the prices of two down to a more reasonable level. We bought Compass Minerals CMP and Paychex PAYX well below fair value for client accounts. Those two buys have amounted to ~$1 Million invested and we have additional buys ready if the market continues to sell off.

We’re excited for the dust to settle on this market and for prices to head higher on these stocks and the rest of the portfolio.

Please call us if you’d like to discuss further,

-Bruce & Tim

More thoughts by Josh Peters, CFA and Matthew Coffina, CFA from Morningstar on the companies mentioned…    

10% correction - CMP Compass Minerals snippet10% correction - PAYX Paychex snippet