We note stock market is under pressure this morning, down about 1.1%. The cause for the decline? Weak earnings from Wal-mart, continued weakness in small cap stocks, and inflation numbers that came in higher than expected.
What’s the point? The stock market has been in a fairly steady uptrend for over 2.5 years, incurring only modest pullbacks and no “corrections”. That is a long run without a correction (defined as a decline of 10-20%) and well above the long-term average of about 18 months between corrections. Occasional corrections should be viewed as normal and healthy to mitigate trading or sentiment excesses. One sector that likely needed some adjustment was small cap stocks, particularly biotech, social media and IPOs. We don’t believe a correction of sentiment and overvaluation in the small cap sector should derail the positive underlying fundamentals for other sectors, such as large caps and value stocks, or the overall market. Our investment model is diversified with respect to asset class, which inherently helps to mitigate volatility of client portfolios.
Link: http://finance.yahoo.com/news/stock-futures-little-changed-ahead-114727141.html