Stocks due for serious correction?

[sweeps]

Stocks have been on a tear recently and I just don't see how they can continue. Oil is at massive record highs, corporate profits are dropping, and consumer spending seems to be running out of steam.

How long can this continue? Your thoughts.

[meaghanchan]

I started investing in October 2005. At that time, stocks had been going up pretty much nonstop for the past two years. At that time, I was nervous to get in, because I felt I'd be investing at a peak, that stocks were due for a correction. I'm glad I took the plunge, though, because if I'd waited for them to drop, I'd still be waiting.

Part of me thinks that stocks are due for a serious correction.

The rest of me knows that all the uncertainity about the markets- and all the knowledge about oil pricing, corporate profits, and consumer spending- is already priced into the markets. Smarter minds than mine are constantly evaluating what each company on the markets is worth. And while they won't always be right, I have no reason to think that I can judge the fair value of those companies better than they can.

But then, I have a long timeline to retirement. I put money into the market every two weeks, on payday, and will continue to do so no matter what happens with the stock market.

[JBinKC]

Sweeps I agree with you on the smaller cap indexes. It appears they are treading on very thin ice and they could get into trouble on weak domestic economic data but I think the internationally exposed larger cap stocks will continue to forge higher with the continuing devaluation of the dollar. I think the trigger for the lower stock prices in the major indexes will be rooted in the implosion of the Chinese market as opposed to stubbornly high retail oil prices. I have a date in mind of when that event will happen but I think it will be more of a 6-9 month aberration than a long term event.

[bigsaver]

I think it is kind of tough to time the markets. In fact, if I were able to, I wouldn't have to work 80 hours a week. I just try to stay well diversified.

[jmjj215]

I just keep my plan on auto-invest into my fund of index funds. I'm in this for the long haul.

[Vapors]

I agree with Jmjj215. If you are investing this money for the long term, don't think about it. The run up has been big but it might go up another 20% before there's a correction. Who knows.

There are people out there who pulled their money out in 2001 and 2002 that didn't put it back until recently (or haven't yet). Look what they missed.

You might get lucky and time it right. But that's unlikely. If the money is needed in the next few years then maybe pull it out. But if not, keep adding to it and don't consider taking it out.

[RetireEarly]

I've been thinking the same thing, and the more I think the more I realize I should pull some of my money out. I'm a very risky investor, and put some money into high risk funds for a short term investment. Since investment, I've earned ~20% APY. This money will probably be used within the next 12 months, and I almost think I'm better off putting it into savings at a guaranteed 6%. The only reason I chose such a risky approach is because if I lose a lot of the money, no big deal. Who knows, I may even decide to leave it for the long term. Of course, all my long-term stuff will stay right where it is...

[disneysteve]

I just keep my plan on auto-invest into my fund of index funds. I'm in this for the long haul.

Bingo. We have a winner.

I started investing in the stock market in 1992 right after we got married. I started with $50/month into a mutual fund. At the time, our total assets were about $6,000. Today, 15 years later, we actively invest just over $2,000/month and have total assets of nearly $400,000. The market has gone up and down during those 15 years. Scandals have come and gone. And we've just kept on investing. I don't plan to retire for another 20 years or so, so I won't be touching the bulk of that money for 2 decades or more.

Is the market due for a correction? Probably, in certain sectors. Am I going to change my investment plan as a result. Nope.

[pretty cheap jewelry]

I joined the game with my IRA when the Dow Jones was about 6,000. It has doubled even with the minor ups and downs. And it will stay put for about another 20 years.

[jIM_Ohio]

I am selling off 1% when I rebalance on June 1. I'll be 99% equity then. If it is still going up when I rebalance Dec 1, I'll take another 1% profit.

Once market goes down, the 1% is going back in.

[jmjj215]

Does anyone have any data on the returns an equity investor would get if they weren't in the market on certain days? I've heard stats quoted that the bulk of gains from a decade can be attributed to 120 days or something like that...

Basically the point is that if you're out, you'll probably miss those days...as they're eh, pretty hard to predict.

[creditcardfree]

When the market goes down...it's a sale...your money will buy more shares...that will eventually go up!! We're on auto invest and will keep things the same...still many years until retirement.

[JBinKC]

Unfortunately, I don't have the days data but that is very true. Usually the best days in the market happen after a major capitulation on the downside in the market. So I must concur that if you are lucky enough to time the market the more power to you.

What is really puzzling is traditional market indicators like interest rate spreads, 3 steps and a stumble etc. have been ignored in this latest bullish run. My explanation for the bull market is the excess liquidity created by foreign countries mainly China and countries with oil exports are dumping of dollar reserves thus causing a large increase in money supply.

The only problem is it will be almost impossible to detect when it will end unless you are a true insider. Without M3 data published and no idea what the central banks and respective countries are doing so you really have no control anymore hence I can understand a persistent approach is warranted.

[disneysteve]

When the market goes down...it's a sale...your money will buy more shares...that will eventually go up!!

This is true of the overall market, but may not be true of individual stocks or even individual mutual funds. Many stocks or funds fall in value and never recover.

[meaghanchan]

Stocks go up, stocks go down. The only thing that is sure about the market is that it will go up and down. But look at where some stocks were in early 2000- Yahoo had a P/E in the 200s, at its peak. If you look at the fundamentals, not the stock prices, I see stuff that may be a little bit overvalued, but nothing like we had in 2000. Sure there are reasons why stocks may go down, but I think there are just as many reasons for them to go up.