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© 2023 by Troy Springer

What is a Market "Correction?"

February 6, 2018


I have no clue.


And I don't really like the term


It implies that the market we are currently in is somehow "wrong." And that the market falling by a couple percentages suddenly makes it "right" and more rational. 


As the Dow fell by the largest percentage since 2009, I was asked together whether I thought this was just a "correction" or the sign of a bear market. What is to correct? The financial media is constantly trying to tie a story to a selloff when in reality, sometimes stock just go down. Check out Stock Cats humorous "narrative generator." We can convince ourselves of any story. 


While markets do get ahead of themselves many investors, including the likes of Warren Buffet and Ray Dalio believe stocks are fairly valued given interested rates.  


Ray Dalio, the famed hedge fund manager wrote that he thought the market was reacting to a more stimulated market. This is counterintuitive in nature but as the economy gains momentum the Federal Reserve could finally use this as an opportunity to raise rates. And the logic goes:


Low interest rates = stocks rise

High interest rates = stocks fall


According to Dalio yesterday was "just a taste" of what rates rising could be like. And if rates do ever rise and if yesterday was any indication, we can expect a quick selloff. There is little doubt that this market is propped up by interest rates. 


But what most people do not understand, is that the stock market, especially not the basket of 30 stocks that is the Dow Jones, is not the economy, and an economy gaining momentum could actually put the stock market into a recession, which is healthy given historically low interest rates. 


While I do not think todays market valuation is of any significant concern, shifting to a more defensive portfolio approach is probably advisable at this point. 






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