EC Here We Go Again?

For those of you keeping score at home, the S&P 500 is in the midst of the second-longest stretch without a 3% correction in the last 10 years (source: Ned Davis Research Group). Although the action was certainly exciting at times last week, that streak remains intact as the S&P closed Thursday down just 2.55% from the recent high and rose 0.4% on Friday. And based on the action in the early going, it appears that the bears will make another attempt to push lower again this morning.

Granted, it took some impressive "dip buying" to keep the market out of the -3% correction zone last week as both Thursday and Friday saw pretty big intraday reversals. But the bottom line is the current pullback can so far be categorized as garden variety.

Yet the recent volatility does not allow pundits to sow seeds of fear by pronouncing that the next big, bad, decline is just around the corner. And with the memories of the market's Q4 frightening market hysterics still fresh, investors can't be blamed for worrying that something ugly is about to happen again.

Pullbacks vs. Bears

At this stage of the game, it is important to recognize that trade news alone isn't likely to cause the type of devastation that tends to occur in bear markets. And so far at least, the action doesn't even resemble the near-bear seen at the end of last year. Hedge funds aren't blowing up and causing forced selling. The Fed isn't on the warpath. The economy isn't in bad shape. Inflation isn't a problem. And valuations aren't extraordinary relative to the last twenty years.

To borrow an argument made by Leon Cooperman on Friday, the conditions for an important top in the stock market just aren't present at the current time. So, unless things change, investors should probably view the current sloppy action as a normal pullback and act accordingly.

Remember, history (and the database at Ned Davis Research Group) reminds us that corrections are normal. In fact, the S&P 500 has, on average, experienced corrections of at least 5% more than three times a year and has seen at least one decline of 10% or more in any given year. Thus, the current pullback of -2.5% on a closing basis and -4.35% on an intraday basis doesn't appear to be anything out of the ordinary. Well, at least at this stage.

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Disclosure: At the time of publication, Mr. Moenning held long positions in the following securities mentioned: none - Note that positions may change at any time.

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