Review & Outlook

Our take on the investing, financial, & economic themes of the day

Is This the Long-Awaited Correction?

15 October, 2014 by Mark O'Brien in Commentary

As I write this Wednesday afternoon the Dow Jones Industrial Average is down 423 points and most other market indices are also down sharply.  Remember that with the DJIA’s growth over recent years, a 423-point drop is “only” 2.6%.  Still, following three other “down” market days bracketing the holiday weekend, this may be the long-awaited 10% correction.

A correction might well be expected after the DJIA’s run-up of roughly 200% from March 2009 to its high in September of this year.  If a correction is underway it may reflect the winding-down of the Federal Reserve’s “Quantitative Easing” (QE) stimulus program, or the declining price of oil.  It is not, however, a sign of a broken economy so much as it is a natural and healthy wringing out of speculation and other forms of excess, a process that our system seems to require from time to time.  Putting up with uncertainty and anxiety appears to be the price of admission to the wealth-creating process that is the market.

While every correction is different, the one thing they all share is the sensation that this one is different, that this one is worse than the others.  The other observation is that a correction can take months to run its painful course and certainly one does not want to sell at the bottom.  Thus the question becomes one of managing one’s emotions.  We might be able to help here. Stay tuned, and we will continue to post are thoughts here. Also, please don’t hesitate to call us if you’d like to discuss the recent developments in the market further.