Is a Correction Coming?

We are approaching almost three years since the last time the stock market underwent a classic correction, which is generally defined as a pullback of at least 10 percent. According to CNN/Money, a correction happens on the average of about every 18 months. Thus, statistically we are more than due at the present time. Note that we are not talking about the end of the bull market which has lasted over six years. The question is: will this correction come in the second half of the year?

For the first half of this year, the stock market has treaded water. This is in contrast to the rest of the bull market in which gains have averaged close to 15% annually for the previous six years. One could argue that this "breather" is a correction, even though there is not a classic loss in value. Another question follows: Why would stocks be stagnating when the economy is picking up steam? Right now there are two factors holding back stocks -- higher rates and international pressures, most recently the crisis in Greece. It is not surprising that stocks are weak in light of the issues Greece and Europe are facing. Interest rates and oil prices have also fallen as the crisis has unfolded.


As for rates, stocks have long benefited from super low rates. Now that rates may be rising in the long run due to a better economy, that benefit may be reduced. Of course, it is not like rates are high right now, especially from a historical perspective. Just keep in mind that rising rates do not affect only the real estate sector. They can have a profound influence on all markets. Right now rising rates are actually benefiting real estate as consumers rush to purchase homes to beat the rate increases.  

Mike Ervin
Branch Manager/Mortgage Banker
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mike@mikeervin.com