By Justin Turner CIM, DMS®, CFP®
Is this the big one? Or will this be another correction of the variety we have seen over the past few years? Many have been expecting a 5-10% correction since
mid-summer. 10% would equate to 1810 on the S&P 500. It would not
be surprising us to see the S&P 500 fall another 40-50 points which would
take us to around that level. What has been the surprise is the quickness
of the decline which has been remarkable as complacency has given way to fear. The TSX has been worse with a decline of over
10% already and many fear more is in store.
The good news is we don’t see this
as a signal the bull market has ended. Global economic growth, based on
the reduced IMF forecast is down from 4.0% to 3.8% for 2015, but 3.8% is still
the best pace we have seen since economies rebounded in 2010/2011.
China’s economy isn’t stopping (they just had one of their highest oil import
months), India is getting better. Oil at $81 dollars has a big positive
impact on oil importing economies including the US, China, India, Europe (ok,
not great for the TSX). The US consumer has de-levered (household debt to
disposable income of 114% in 2009 to 90% today), wages are starting to rise,
unemployment is still falling.
So if you agree it’s a correction,
not the beginning of a bear market, then what to do? Corrections don’t
stop at 10% necessarily (that would be too convenient). There is
certainly some value out there and some quality names that have been beaten
down. We don’t know when the correction will end, but there are some
indicators that this selling may be getting tired. Nonetheless, doing
some buying now and potentially some later will be our approach.
When panic looms, the fundamentals
go out and sentiment and technicals tends to rule. Some of those factors are currently very at
the bearish levels that have coincided with past market bottoms.
