The Nasdaq officially moved into correction territory this past Monday and was down more than 10% from the all-time high set just a few weeks ago.
As mentioned in one of our recent communications, Here Comes The Earnings Boom, we were expecting to see a pull back in the market and were encouraging investors to view this as an opportunity. Based on our analysis of market fundamentals and technicals, we believe this is completely normal for this stage of a bull market and it represented a "buy the dip" opportunity.
In fact, the NASDAQ came roaring back Tuesday with a gain of almost 4%. It then opened sharply higher again Wednesday morning with another gain of over 1%. Of course, this is a very short-term perspective and investors should be focused on the longer term, however we wanted to point out that – at least in the short-term – this recent pullback has represented a nice buying opportunity for many investors.
It took only 15 trading days for the Nasdaq to move into correction territory, which represents one of the fastest corrections. Interestingly, 2020 holds the two fastest corrections ever. What does this mean? “Yes, being down 10% in three weeks is a scary scenario for investors heavy in Nasdaq and technology names, but history might be on the bulls side here,” explained LPL Financial Chief Market Strategist Ryan Detrick. “In fact, looking at the previous fastest correction ever shows us that six months later the Nasdaq is up 23% on average and higher 9 of the previous 11 times.”
As the chart below displays, previous fast corrections tend to resolve higher (or even much higher) going out 3 to 12-months. This pullback no doubt can feel uncomfortable to some, but investors willing to use this correction as an opportunity very well could be rewarded down the road.
Ward Keever, President and CEO of Covenant Wealth Strategies is often quoted as saying, "the market is an escalator on the way up, and an elevator on the way down." Markets generally move up relatively slowly and can move down rather suddenly from time to time. However, these down drafts often represent “buy the dip” opportunities.
Our confidence in the economic recovery continues to grow, bolstered by vaccine distribution, and fiscal and monetary stimulus. We anticipate a strong earnings rebound will enable stocks to grow into their elevated valuations, even if interest rates move a bit higher from here.
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.