The State of the Markets:
Are we having fun yet? To be sure, the recent stock market correction has created some angst as the bears have knocked -7.55% off the DJIA, -9.63% off the S&P 500, -12.60% off the NASDAQ Composite, -12.86% from the Mid-cap index, and -15.69% from the Russell 2000 small-cap index. So, as they like to say on TV, most of the major indices are definitely in "correction territory."
However, the fact that the market corrected should not have come as a surprise to readers of this oftentimes meandering morning market missive. For example, back in July and August I began emphasizing the point that many of my favorite long-term market models were not in their happy places and that "risk was elevated."
And I am pleased to report that we did take some precautionary measures in various portfolio strategies to take both the beta and the exposure of the portfolios down a notch or two.
However, it is important to remember whilst patting one's self on the back that taking defensive measures is only half the battle! The next trick is to identify when the coast is clear and to attempt to benefit from the pullback.
Which brings us to the title of this week's macro market missive: How Low Can It Go?
Obviously, this is a tricky subject. And to review, I don't run portfolios based on my view or make market calls. No, on that note, I prefer to stick to the weight of the evidence from my major market models. However, experience has taught me that it can be tough to pull the trigger when the indicators tell you to take action - especially during emotional markets. Thus, having some sort of clue as to how far the bears could take things during ...