Stocks—Headed Down?

By: Dr. Lynn Reaser

ImageAfter last year’s stock market surge (30% for the S&P 500), 2014 has seen a bumpy start.  Are we headed for a “correction,” typically defined as a drop of 10% or more during the next six months?

The answer is probably “yes.”  Some selling may occur to lock in profits or rebalance portfolios.  Fundamentally, signs of better economic growth may stoke concerns of faster Fed tightening, while signs of slower activity might fuel concerns over profits.  Most of last year’s meteoric rise reflected an expansion of price-earnings ratios.  Profit gains will be more important this year.  A 10 percent pullback could give some respite from the development of a possible bubble.  

The bull market is not yet over, but expect much more muted gains of 4-5% in 2014.


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