November 2, 2023
Last week, the S&P 500 briefly slipped into correction territory after it saw a decline of more than 10% from its most recent peak in July. The Nasdaq Composite index, which is heavily focused on technology stocks, had already entered correction territory earlier in the week.
This past Monday, all three major stock indexes saw gains of over 1% by the close of trading. These gains were attributed to strong earnings from McDonald's Corp. and the announcement that Western Digital Corp. would be spinning off its flash-memory business.
Why Did The Market Pull-Back?
The recent decline in stock prices is partly due to the reality of higher interest rates. The Fed has been discussing the possibility of maintaining "higher for longer" rates. The Federal Open Market Committee (FOMC) recently met and has decided to keep rates unchanged, while reiterating its plan to proceed carefully in subsequent meetings. Markets will likely feel some near-term relief in response to the decision.
Additionally, the recent stock market decline can be attributed to rising Treasury yields, making bonds more attractive to investors. The 10-year bond yield recently exceeded 5% for the first time since 2007. Furthermore, there are various economic and geopolitical concerns, such as escalating tensions in the Middle East, which are influencing market sentiment.
For investors wondering about the impact of a market correction on their investment accounts, it's essential to keep in mind that markets tend to recover relatively quickly. Pullbacks typically take about 1 – 2 months to recover or breakeven, while corrections on average can take up to four months. Bear markets, with declines between 20% and 40%, can take around 13 months or more to recover. Staying invested in the market and having a long-term perspective can be key in navigating such market fluctuations.
What Is A Correction?
A "correction" occurs when a market experiences a decline of at least 10% from its most recent peak, signaling investor skepticism about the future of stocks.
It's more significant than a "pullback," which is typically a short-lived drop of less than 10%. A “correction” is not as severe as a "bear market," which involves a drop of 20% or more. Corrections tend to happen every few years on average, even during extended bull market periods like the one from 2009 to 2020.
Where Is The Opportunity?
We think suitable investors may want to consider "buy the dip" opportunities as they arise. Based on the decision of the Fed to pause rate hikes, combined with strong valuations, we see the potential for a year-end rally.
It is important to not lose sight of your long-term goals as volatility occurs and to maintain your perspective in the midst of market ups and downs.
Our Covenant Wealth Strategies' Investment Team is closely monitoring a variety of signals and indicators to make wise and appropriate investment decisions.
If you have specific questions or would like to discuss your own investment strategy or financial planning needs, we welcome you to call us at 302.234.5655 or email us at email@example.com to set up time to discuss further.
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