Maya G. from Bend, OR
asks: Good morning, Mitch, I’ve been hearing talk of a correction quite a
bit in the financial news. Many analysts think a Delta-induced slowdown will
hold back earnings and lead to declines. What’s your take?
Mitch’s Response:
Thanks for writing, Maya. I understand what you’re saying –
there have been quite a few calls for stock market pullbacks in the final
months of the year, with many analysts writing columns and going on TV saying
we’re “due” for a correction.
I technically belong in that group too, as I’ve written a
few columns reminding readers that it’s been several months since we’ve seen a
pullback of -10% or more. Unlike many of the analysts you might see on the
financial news, my main goal is almost always to remind readers that corrections
are normal, common, but also
unpredictable. Saying we’re “due” for a correction is a bit misguided, I
think since corrections don’t follow timelines or calendars.1
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That all being said, the Delta variant concerns you
referenced are indeed showing up in some earnings’ calls here and there. We’ve
noted the major airlines starting to report cancellations and warnings of Q3
negative earnings surprises, and we have also seen some concerning language in
earnings revisions for hospitality and household goods companies. There could
be an impact on Q3 earnings results, but I’m not convinced it will affect every
sector nor that it will last very long.
To be fair, however, there are currently signs of downside
pressure in pockets of the equity markets. As I write my response to your email,
equities are selling off and have exhibited downside volatility right from the
open. It is also true that a wide majority of Russell 2000 stocks have fallen
into correction territory (-10%) over the last few weeks, with many S&P 500
stocks also trading off 52-week highs. It may be that we’re already in the
early stages of a stock market correction.
I think the bottom line is this – if you are an equity
investor, you should always expect volatility and the possibility of a stock
market correction. It comes with the territory. The wrong move, in my view, is
trying to figure out when and for how long the stock market is going to dip. No
investor can get this type of market timing right over time, and attempting to move
in and out of stocks based on conjecture is a recipe for adversely impacting
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Disclosure
1 Yahoo Money. September 13, 2021. https://money.yahoo.com/suddenly-everyone-thinks-the-stock-market-is-going-to-plunge-morning-brief-091030650.html
2 ZIM may amend or rescind the guide “Helping You Manage Market Volatility” for any reason and at ZIM’s discretion.
3 ZIM may amend or rescind the guide “Helping You Manage Market Volatility” for any reason and at ZIM’s discretion.
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