This Correction Looks Like a Hiccup

As seems to be the trend, the recent correction has been extremely quick and sharp, with the S&P declining -6.5% in three days. Technology heavy NASDAQ got hit even harder, dropping -10%. It is important to remember, prior to this drop the S&P was up +10% for the year and almost 50% off of the March low, in the middle of the pandemic. NASDAQ was up even more, nearly 25% for the year and 80% off of the bottom. As we talked about before, the market was ahead of itself.

An overheated stock market corrects in one of two ways: by moving sideways, treading water over time and allowing companies to grow into their valuations or, more often it drops, falling into a “correction” such as we are seeing now.

The market was too far ahead of itself and this looks like a normal, healthy, overdue correction. Nothing has materially changed over the past week, if anything, unemployment was better than estimates. We expect, barring any news, that we are close to being done with this drop.