There is a context in the current market correction that has rarely been mentioned by commentators. Since 2010, the SPX 500 has been continuing nicely in a firm bull channel up until the start of the pandemic in 2020. After the shock of the COVID-19 lockdowns, the index accelerated in growth from May 2020, hitting an all-time high in January 2022. Arguably has been too eager and market overstretched itself.
From there, the market entered a deep correction - for the SPX it has reversed into a "bear market", dropping more than 20% off it's all time high.
But even so, the market has not yet reentered that established bull market channel from 2010-20. The SPX remains above that channel even today.
So, there are two things to consider here.
So what?
Well, if you're happy with something like a 25% percent gain from here over some unrestricted timeframe for the SPX to get to it's all time high, then it's fine to get in now.
But, if your timeframe for returns is short, it would be better to sit on the sidelines, and wait for the market to decide whether SPX should drop back into the channel, or just make a step higher.
Either way, there's no reason to be too greedy right now.
From there, the market entered a deep correction - for the SPX it has reversed into a "bear market", dropping more than 20% off it's all time high.
But even so, the market has not yet reentered that established bull market channel from 2010-20. The SPX remains above that channel even today.
So, there are two things to consider here.
- Firstly the US long term bull market is still intact, and one day, the SPX will hit the all-time highs.
- But secondly, and more importantly, there is a lot of downside still to be had. The story of inflation and the impact on economies is only half told (which is why we're not back in the channel yet), and when it does play out, there is a scenario where the SPX might hit the bottom of the long term channel, currently at ~3120, or another 20% down (36% off peak).
So what?
Well, if you're happy with something like a 25% percent gain from here over some unrestricted timeframe for the SPX to get to it's all time high, then it's fine to get in now.
But, if your timeframe for returns is short, it would be better to sit on the sidelines, and wait for the market to decide whether SPX should drop back into the channel, or just make a step higher.
Either way, there's no reason to be too greedy right now.