The best market technicians are still busy debating the cause of last week’s selloff. While we are waiting for their answer I thought I would share some statistics on this ugly occurrence that always seems to occur when we least expect it.
Yardeni Associates, a noted market analytic firm reports that 23 downdrafts of 5% or more have occurred in the last 31 years. Technically speaking, however, the downdraft must be at least -10% to be labeled a correction. This past February we experienced a 10.2% correction that lasted 13 days and claims the status as being the shortest on record. Yardeni’s research also concludes most corrections on record have been extinguished by continuing bull markets. The most credible reason I have found to date is a combination of rising rates combined with some slowing growth in Europe and BREXIT could suggest the market might be a little expensive given the slowdown in growth rates of our largest trading partners.
During corrections, I find it useful to review every portfolio I manage for opportunities to review and bring the asset allocation mix up to date as the unusually strong market performance we have experience tends to expand the size of our equity holding versus bonds. I will be back to you with a progress report and more insight in the next several days.