Wall Streets Correction

9 February 2018 By PDSNET

The correction which is taking place on Wall Street has now reached 10% - and it may go further. The JSE Overall index is down and will fall further to bring it into line with Wall Street. Other world markets are following suit. For the private investor, the key consideration is whether this is the start of a new bear trend or simply a correction and a buying opportunity. When thinking about this, you should consider that prior to this, the S&P500 index had been rising at a rate which was clearly unsustainable. It rose by 100 points in just ten trading days as we indicated in our article The Bigger Fool on 29-1-18. So now the correction is happening, what will it look like? Well most probably it will not go down too far and it will not stay down there too long. The last correction began in July 2015 and ended in February 2016 7 months and it reached 14%. Because the S&P was well above its upper channel line, this correction could be similar except that we do not expect it to last as long. We believe that it will be short and sharp.

S&P500 Index February 2014 to February 2018 - Chart by ShareFriend Pro
From a fundamental perspective, much of the rise in the S&P has been because of the growing optimism about the US economy. That economy is growing at an incredible rate now and it is a huge economy (more than twice as big as the next biggest economy in the world). The growth in the US economy is going to continue and even accelerate. So we think that as the positive economic statistics come through they will shift the sentiment on Wall Street back to positive. Indeed one of the causes of the current correction is that traders have been spooked by the exceptional growth in the US economy which they believe will result in the Federal Reserve Bank raising interest rates much more quickly. It is one of the great ironies of Wall Street that very good news about the economy can cause the market to fall because of the fear of interest rate hikes. So our view is that this is definitely a correction and not the start of a new bear trend. As positive news flows through from the US economy, the market will recover. What has happened is that some of the irrational exuberance has gone out of the market. Investors will be more cautious for a while. But we believe that this is a healthy and inevitable correction which will return some sanity to the underlying bull trend.  


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