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New correction, same as the old correction?

Stocks were down again on Wednesday in afternoon trading, threatening to push the S&P 500 to a fresh three-month low. The overall decline from the index's recent high in mid-September is now 6.6 per cent, which is starting to hurt.

Of course, there have been worse declines since the bull market began in 2009, and in retrospect all looked like great buying opportunities. Most recently, the S&P 500 fell nearly 10 per cent between April and June of this year. And the index fell more than 19 per cent between April 2011 and October 2011.

So is this most recent losing streak any different from those earlier dips? In some ways, yes. In some ways, no.

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In the two earlier dips, economically sensitive areas of the S&P 500 led the declines, while economically defensive areas held up a lot better. More specifically, commodity producers have been consistent laggards in all three dips.

In the current retreat, energy stocks have fallen 9.4 per cent and materials have fallen 8.3 per cent. In the spring retreat, energy stocks fell more than 14 per cent and materials fell about 12 per cent. And in the 2011 correction, energy stocks sank 28 per cent and materials fell 29 per cent.

But here's a key difference: Financials were the worst performers in the two previous dips, falling 15.5 per cent in the spring and 31 per cent in 2011. This time, they are doing far better, slipping just 5.9 per cent and outperforming the broader index.

Meanwhile, technology stocks have become the biggest laggards this time around, falling 12.1 per cent – and you can lay the blame at the feet of Apple Inc. The top-weighted stock in the S&P 500, based on its enormous market capitalization, has tumbled 23 per cent from its record high in September.

As for causes, the so-called fiscal cliff is getting most of the blame now. U.S. taxes are set to rise and government spending set to fall in the New Year should the White House and Congress not come to an agreement on how to trim the U.S. budget deficit. While the fiscal cliff is not terribly new, it has taken on increased urgency since the U.S. presidential elections ended with the promise of more political gridlock in Washington.

In a recent blog post, Cam Hui of Humble Student of the Markets acknowledged that the bear case was easy to make: The fiscal cliff, the ongoing European sovereign-debt crisis, discouraging third-quarter earnings and a fear of an oncoming U.S. recession are among the top reasons to shy away from the market.

Yet, he believes there are reasons to be bullish too. Panic over the fiscal cliff might be overblown, given the extraordinary media attention it has received. He thinks the most likely scenario is a compromise or some sort of solution that allows government to kick the can down the road – and even a temporary solution could trigger a "face-ripping rally."

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He expects the struggle between these two views will lead to market choppiness.

"In conclusion, I believe that all these cross-currents are just a recipe for more volatility," Mr. Hui said. "While I am concerned about downside risks, investors also have to be aware of what could go right."

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