One minute, we're contemplating the start of a stock market bubble; the next, a correction. The S&P 500 is down again on Thursday, putting it on track for its fifth straight decline. But let's put this into perspective: It's nothing.
Blame the current losing streak on taper-fears. Upbeat economic news from the United States – notably, jobless claims, manufacturing acivity and GDP growth – has convinced many economists that the Federal Reserve will soon trim its monthly bond-purchases, known as quantitative easing or QE. Early next year seems to be the most popular start time.
Given that QE has been boosting stock prices in recent years, the concern is that any fiddling with stimulus measures will have the opposite effect. Markets, then, are selling off even though the economic backdrop looks relatively healthy.
There are market concerns, of course: The S&P 500 has risen some 160 per cent since 2009, the bull market is well over four years old and there hasn't been a real correction of 10 per cent or more in over two years. So, some drubbing is expected, even among bullish strategists. And among the bears, concerns turn to sky-high profit margins that are bound to return to earth, potentially skewering the bull.
But dips and losing streaks are another matter. The current turbulence looks like nothing more than a light breeze at this point. The S&P 500 is down less than 1.3 per cent from its record high.
Even though the benchmark index is on track for a year-end gain of 25 per cent, there have been five dips in 2013 – all of them less than 6 per cent – suggesting that the occasional slump is nothing to get worried about. And if the five-day losing streak is weighing on you, consider that the only other five-day streak this year, in September, took the index down all of 4.1 per cent.
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David Berman