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If there is a consensus emerging among strategists and market watchers in the midst of the current market mayhem, it's this: Don't worry, stay calm. So far, investors are listening.

While global markets were down in afternoon trading on Friday, following Thursday's sharp selloff, the declines looked more like an echo than rising fears of an oncoming correction.

The S&P 500 was down 0.4 per cent, which is mild compared to its 2.1 per cent decline on Thursday. Overall, the benchmark index has fallen just 3.4 per cent from its record high on April 2. The Nasdaq composite index was down 0.6 per cent on Friday, versus a 3.1 per cent decline the day before.

Skeptics have plenty of reasons to disregard the soothing words of the pros, of course – when has a Wall Street strategist ever recommended running for the woods in terror? – but there is a lot of common sense in their stay-the-course approach as major indexes surrender their year-to-date gains.

Here's a list of four major points.

1. This is a rotation, not capitulation. Stocks with high valuations and big growth expectations have suffered disproportionately to stocks with lower valuations and a far less enthusiastic forecast for future earnings.

Consider that Facebook Inc. has fallen 17 per cent since March, Google Inc. has fallen more than 10 per cent and biotech stocks in the S&P 500 have fallen about 16 per cent since February. Meanwhile, staid old utilities have rallied nearly 10 per cent this year.

"Let's not forget we went into 2014 with lofty expectations, sky-high sentiment and valuations pressed against their cycle highs," said David Rosenberg, chief economist and strategist at Gluskin Sheff + Associates, in a note. "Up until a few weeks ago, the IPO calendar was stuffed with high-flying, speculative, fast-momentum offerings – and at a pace we had not seen since the dot-com boom of 2000."

2. Look ahead to better earnings. It is likely no coincidence that stocks have turned weak just as U.S. companies start to report their first-quarter financial results: Analysts have been slashing expectations since the start of the year, to the point where they expect to see little or no growth over last year. That's a problem because it makes the S&P 500 look very expensive when it trades at about 17-times earnings, or its highest level in about four years.

But the first quarter could be an aberration since the unusually cold winter froze a lot of economic activity. According to Goldman Sachs strategists, investors should keep an eye on management forecasts as they roll out their first-quarter results, for signs of a better year ahead. "We expect guidance provided will be less negative than usual, a reversal of the more negative trend from recent quarters," said Goldman Sachs' Amanda Sneider.

3. It's the economy, stupid! The last bear market coincided with a financial crisis and global recession. Now, the economic backdrop is growing stronger, especially in the United States.

Weekly jobless claims have fallen to seven-year lows, payrolls are expanding and the unemployment rate is down to five-year lows. In Greece – the epicentre of the European debt crisis not long ago – investors snapped up an issue of five-year government bonds, accepting remarkably low yields. Europe's economy is growing again and Japan is showing encouraging signs of escaping from years of deflation.

China stands out as a concern, especially after its exports and imports contracted last month. But even if growth subsides to just over 7 per cent this year, economists don't see any big problems ahead.

"Despite growing worries about China's economy, we remain relatively optimistic," said Benjamin Reitzes and Jennifer Lee, senior economists at Bank of Montreal, in a note. "There's little doubt China's economic speed limit is lower than in the past decade – due in part to worsening demographics – but the world's second largest economy will still be a global force. It will also benefit in the short term from healthier growth in the U.S. and Europe."

4. Here's what a real correction looks like. Sure, some stock valuations are absurdly high, the stock market has risen nearly three years without a correction of 10 per cent or more and the bull market is now more than five years old – all of them good reasons to stay cautious. Yet, there's little reason to be scared.

Michael Hartnett, chief investment strategist at Merrill Lynch, argued that the current state of the market doesn't match conditions for a sustained downturn. Among stocks, key areas such as banks, real estate, software and retailing are still well below their record highs, suggesting conditions aren't frothy. Companies and investors are holding a lot of cash, while debt is coming down, implying caution still prevails.

"While bears are jumping for joy, bull markets don't end with such high cash and low leverage," Mr. Hartnett said in a note. "They also rarely end with tobacco being the only U.S. subsector at an all-time high."

He believes that a correction of 10 per cent to 15 per cent is coming but probably not until the autumn, when the Federal Reserve ends its bond-buying program and investors start to anticipate the first interest rate hike. Perhaps some investors are now trying to beat the rush.

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