Correction?

11 August 2017 By PDSNET

A couple of weeks ago (25th July) we ran an article under the heading of Market Review. In that article, we ended off by suggesting that some sort of correction in the S&P500 index appeared imminent. Our reason for saying this was that nothing moves in a straight line in the markets. Sooner or later there is always a correction in a bull trend or a rally in a bear trend. Our exact words were: It (the S&P500) is approaching its upper channel line, which implies that some sort of pull-back or correction may be imminent. You should [glossary_exclude]bear[/glossary_exclude] that in mind, as an investor and recognise it, when it happens, for what it a healthy correction in a powerful [glossary_exclude]long[/glossary_exclude]-term [glossary_exclude]bull trend[/glossary_exclude]. Now, suddenly, we have what could be the beginning of that correction. Consider the chart:

S&P500 Index January 2017 to August 2017 - Chart by ShareFriend Pro
Wall Street has not had a significant fall for a [glossary_exclude]long[/glossary_exclude] time and is overdue for a correction. The [glossary_exclude]earnings[/glossary_exclude] season on Wall Street has seen big-name companies coming out with better-than-expected results recently, especially among tech-stocks which have been leading the way upwards in recent months. Driven by a booming American economy that is creating jobs at a record pace, companies in the S&P have been doing very well. We expect this upward trend to continue, but some sort of correction is, by now, overdue. While yesterdays sharp fall is not materially larger than other recent falls, it is qualitatively different. It was prompted by President Trumps aggressive remarks about North Korea. Stock markets usually hate wars. They are a massive and pointless waste of human and financial resources so some Wall Street investors decided to take profits and get out while the going was good. Hence the 1,4% fall on Wall Street. Of course, if Trump tones down his rhetoric, the situation could evaporate as quickly as it arose. If not, we will see prolonged uncertainty and further falls in share prices. In our view, however, Trump, while bombastic and volatile, is unlikely to be able to drag America into a foreign war. More likely, he will use the situation to divert attention away from his current problems over his relationship with the Russians. The longer the rhetoric goes on without an actual shot being fired, the less likely it is that a military solution will be implemented. Investors will tend to calm down and [glossary_exclude]return[/glossary_exclude] to the market so as not to lose out on further capital gains. Greed will supercede fear. Our view is that this is a correction at worst and a blip [glossary_exclude]at best[/glossary_exclude]. If we are right then it may represent a buying opportunity for those who are not yet sufficiently invested in this great bull market. Whatever Trump does, it is unlikely to derail the pattern of growth which is taking hold in the US and Europe so sooner or later we believe that this will blow over and the [glossary_exclude]bull[/glossary_exclude] market will regain ascendancy. Corrections very seldom exceed 10%.  


DISCLAIMER

All information and data contained within the PDSnet Articles is for informational purposes only. PDSnet makes no representations as to the accuracy, completeness, suitability, or validity, of any information, and shall not be liable for any errors, omissions, or any losses, injuries, or damages arising from its display or use. Information in the PDSnet Articles are based on the author’s opinion and experience and should not be considered professional financial investment advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. Thoughts and opinions will also change from time to time as more information is accumulated. PDSnet reserves the right to delete any comment or opinion for any reason.



Share this article:

PDSNET ARTICLES

The Debtors' Book

A BIT OF HISTORY

Many years ago, in 1982 when I started this business (which became “PDSnet”), I ran advertisements in both the Rand Daily Mail (RDM) and in the Star – which were the two most widely read newspapers in Johannesburg at the time. At that time, we were a very small business and had no credit rating at all. Despite this the RDM immediately

WeBuyCars - Results

The financial results of companies show how profitable they are and give a good indication of their share’s risk and potential return. WeBuyCars (WBC) is a recent listing which came to the JSE on the 11th of April 2024. Unlike other listed motor vehicle companies, it is a company which specialises in the purchase and sale

Choosing Winners

We are often asked how we go about selecting the shares to put on to the Winning Shares List (WSL). Right now, there are 102 shares on the list with 5 having gone down since they were added, 94 are up and 3 are unchanged. On an annualised basis, 24 of them are performing at above 100% per annum.   

As a private investor,

Kore Revisited

Kore (KP2) remains at once the most exciting and most risky investment on our Winning Shares List (WSL) at the moment. We originally added it to the list just over a year ago on 16th May 2024 at a price of 20c. It subsequently rose to a high of 83c on 3rd October 2024 and we published an article

Rand Strength 2025

The strength of the rand is both a critical and a complex issue for private investors on the JSE. Our currency is influenced by two primary forces:

  1. Our local economy’s prospects
  2. The rand’s role as a leading emerging market currency

These, in turn, are

Sibanye Revisited

In these uncertain times, when nobody really knows to what extent Trump will back down on the international trade war which he has initiated, many investors are moving into precious metals as a hedge against the weakness of paper currencies (especially the US dollar) and paper assets like equities and bonds.

The problem

Smart Local Investors

The last two months have been wild on the markets – mainly because of Trump’s ill-advised, on-again, off-again tariff policies. The issue now is:

Will this morph into a full-blown bear trend? Or is this correction almost over?

From his election victory on the 6th of November 2024,

Jerome Powell

The Federal Reserve Bank (“the Fed”) is completely outside the control of the President and Executive Branch of the US government. The chairman of the Fed is appointed for a renewable 4-year term by the President. The President cannot remove the Chair without cause. The current chairman, Jerome Powell was appointed by Trump during his first term as President and reappointed by

Uncertainty Soars

Investors are by their very nature risk takers, but they are always trying to reduce the risk which they have to take to a minimum. Donald Trump, with his threat of an international trade war and his on-again, off-again tariffs has significantly increased the level of risk in markets across the world. This can be seen in the extraordinary volatility in the S&P500

Liberation Day

Trump has done the unthinkable. He has deliberately engineered the collapse of the US and world stock markets in the nonsensical belief that somehow an international trade war will make Americans richer. Nothing could be further from the truth. His actions have taken the S&P down from its all-time record high of 6144.15 on 19th February 2025 to Friday’s