What to Know About the September Sell-Off By Jeff Havenstein, analyst, Retirement Millionaire
The sell-off was brutal... On September 20, the Dow Jones Industrial Average dropped 600 points. The S&P 500 Index fell 1.7%. But that was only a bad day in what turned out to be a bad month for stocks... The S&P fell nearly 5% in September. Adding more fear, investment bank Morgan Stanley made headlines when it said that stocks may fall 20% or more. According to Chief U.S. Equity Strategist Mike Wilson, a bear market could happen because of slowing economic growth, falling consumer confidence, and less fiscal stimulus. While you should pay attention to all of that, I'm not worried today. I don't think this is the beginning of a bear market. Let me show you why... First, these types of bearish market calls simply don't happen at market tops. Think back to the dot-com boom. In the late 1990s and early 2000, a sense of euphoria surrounded the markets. Just about every asset class went up. Investors felt they could do no wrong. As a result, everyone had a hot stock tip for their neighbor... And I'm willing to bet most of your friends couldn't stop bragging about their big winners. There was little talk of market corrections or bear markets. The only real difficult decision people had to make was how much money they would borrow to buy even more stocks. Right now, folks aren't as euphoric. The COVID-19 crash is still fresh in their minds. This tells me stocks aren't likely at a peak yet... When you start bumping into people you haven't seen for a while and they give you investment advice, that's when you'll know it's time to get out. We saw some of this earlier this year, but that has cooled. To me, the recent sell-off in the market is a perfect example of "buy the dip." Another reason I don't think that this is the beginning of the end – or at least a market drop of 20% or greater – is because the economy is in a good place. Consumer spending has roared back since the start of the pandemic. It's currently at all-time highs. And as the consumer goes, so goes the economy... Meanwhile, corporate profit margins haven't been this high since 1968... Plus, the chart below will show you there's plenty of liquidity in the U.S. economy. That means the risk of a near-term recession is low... Now, I want to be clear... I'm not saying stocks will bounce back to new highs immediately. It's possible – even likely – that there's more selling to come. A correction of 10% or more may be ahead... And if your portfolio is well-diversified today, you should be OK with that. We have been overdue for a pullback. Stocks haven't seen a 5% pullback in more than a year. The market has been too hot lately, and it won't be a bad thing if it cools off... since that will help get rid of some of the remaining speculators. As my colleague Dr. David Eifrig always likes to say, "Corrections are a normal part of the market cycle." Even throughout the last great speculative market run during the dot-com boom, as Steve and his team have noted before, the tech-heavy Nasdaq fell roughly 10% five times on its way to posting a triple-digit return. Again, corrections are normal. They are nothing to fear... even in bull markets. I'm bullish over the next few months, despite the recent underperformance in the market. This is a fantastic opportunity to buy the dip. Good investing, Jeff Havenstein Editor's note: If you're skeptical about the future of this bull market – or if September's price action has you spooked – you're not alone. Our firm's top partners and analysts recently sat down to take a hard look at the markets. Make sure you watch it now to see if the bulls or the bears win out... and to learn the No. 1 step you should take right now to position your investments for what's next. Watch the video here. INSIDE TODAY'S
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