Wednesday, September 27, 2023
Hometalking numbersWhy we could see a market correction in February

Why we could see a market correction in February

As a percentage of household assets, stocks are now 28.7%, accordingto data from the Federal Reserve.

"By no means are the households shunning away from theequities, like they did during the late 1970s and early 1980s," writes financialblogger Tiho on The ShortSide of Long.

But, what's interesting to note is that the last time stocksapproached 30% of assets, the market peaked and corrected within a year. That,of course, was at the time of the financial crisis five years ago.

To be sure, some of it had to do with rate at which stockprices climbed. In the five years from start of 2003 to the end of 2007, thebenchmark S&P 500 index was up nearly 57%. That more or less mirrored thegrowth rate of the percentage points of equity compared to total assets duringthat time frame – from north of 20% to shy of 30%.

Since the market's bottom in March 2009, the S&P 500 isup 172.5% but the growth rate of equities as a percentage of household assetshas just about doubled, not tripled.

So, does that mean this time is different?

Jason Rotman, managing partner at Lido Isle Advisors, thinksstocks will head down in the short-term, but not because of an importantthreshold in equity ownership.

"Just because the equity ownership has matchedpre-crash," says Rotman, "[that] doesn't necessarily mean that'sgoing to happen again for that specific reason. Correlation does not equal causation."

Rotman believes the markets are at the high for the quarter.One reason is because the Fed has begun tapering its bond-buying monetary stimulusprogram. "If we're going to pull back this stimulus throughout the wholeyear, that's going to be some serious headwinds for stocks," says Rotman. Anotherproblem for stocks is lackluster earnings, according to Rotman. Nonetheless, heis bullish in the long-term.

Talking Numbers contributor Richard Ross, Global TechnicalStrategist at Auerbach Grayson, is not too worried about a short-term declinein the S&P 500.

"It's not all rainbows and unicorns out there from eithera fundamental or a technical standpoint," says Ross. "But I still seeenough in the pure price action of the market and the technical structure to bebullish here. A 2% pullback is nothing. We've become spoiled in this market. Youcan be bullish but, on the same token, we see pullbacks all the time within thecontext of that bullish uptrend."

Ross can see the S&P 500 moving towards its 50-daymoving average, currently around 1,807 or roughly 2% below its close on Tuesday.A break below 1,800 puts the index at risk for targeting its 150-day movingaverage which was at 1,723 on Tuesday, or a decline of about 7%.

For Ross, next month could possibly see a decline in themarkets.

"November through May, we know that's the bestsix-month period," says Ross. "That's where all the gains have comein the S&P since 1950 on a cumulative basis. But, within that strongsix-month period, February is the weak link."

On average, February is the second-worst performing monthbehind September for both the S&P 500 and the NASDAQ Composite indices.

"If we're going to get a correction, you want to startto look at February because of that seasonal weakness as a potentiallyhigh-probability target," says Ross. "But, I do like the market. Iwant to buy that pullback. I think we finish higher once again for 2014."

To see more analysisof the S&P 500 by Rotman on the fundamentals and Ross on the technicals,watch the video above.

Follow us on Twitter: @CNBCNumbers
Like us on Facebook:


Most Popular