Market Thoughts on a Correction

Boy, when sentiment shifts – it REALLY shifts fast!

Suddenly nothing is satisfactory for this market. We saw Google (GOOG) and Goldman (GS) post strong earnings, yet still sold off. Why did President Obama pick yesterday for a statement on bank regulation? I'm not going to fight the obvious answer; I will leave it to others to decide whether this was foolish and/or ill-timed.

Is it significant? Mostly, it is not. Congress will hold hearings about the causes of the financial crisis. (None of the root causes was addressed in yesterday’s comments. Studies show 98% of the losses came from classic credit issues: lending money to people who couldn’t pay it back; compounded by lax lending standards; assisted by leverage. We have rules on the books already; they just need to be enforced better).  

In any case, we NEED happy, healthy banks for economic growth. We need banks to provide credit, jobs, and support to our anemic economy.  Expect to hear plenty of debate. The eventual legislation is months away and passage is uncertain at best.

All that said, it’s all an “overreaction” but, on the very large other hand, it’s about time this market finally acted “normal” and pulled back a little. We have had a very nice run from the market lows of March 9^th.

A reminder lesson on what’s “normal” for the market: In general, the market corrects at least 3-4x per year (up to 5%); that’s “Normal”. Each correction is caused for a different reason, but a pull-back none the less. The most recent example is the last 10 months – from the amazing rebound off the market low; We’ve had 4 corrections!! (Corrections ranging from 3%-8% each time). Looking back, do you even remember them now? Most investors do not.

Please remember CNBC goal is selling advertising! Not advising you on your money! Just like TMZ covering Tiger Woods – dramatizing events is their goal! Success comes from planning – not investing on emotion.

When the correction becomes greater, more dramatic than “normal” is when we should be concerned as investors. We are keeping a close eye on that; if the situation dictates, we will make adjustments to client’s portfolios & do our best to protect the downside.  We’re only a phone call away to discuss your situation in more detail. We appreciate your Trust.