Since the most recent high in April, the equities market and stock exchange traded funds have been slowly receding. Analysts are now worried that the tepid decline may snowball into a full-blown corrections as scared investors exacerbate the drop.
As of the April 2, 2012 market high, the S&P 500 has diminished 4.6%, a little short of the 5% to 10% decline to be defined as a “pullback,” Sam Stovall, Chief Equity Strategist at S&P Capital IQ, wrote in a research note.
“So far, the fall is simply noise, in our opinion,” Stovall said. “Of course, many investors are becoming unnerved by the growing intensity of this noise, believing it may be signaling the onset of a more severe storm. As a result, they have begun to act like a dog frightened by thunder that seeks the shelter of a nearby bed.”
Historically, since 1950, the S&P 500 has experienced a median 19 days to fall past the 5% threshold to hit a market pullback. Additionally, 72% of all pullbacks, corrections and bear markets fell below the 5% decline threshold in 28 days or fewer, compared to 25% of pullbacks that took over 28 days to become corrections and less than a third turned into new bear markets.
“Therefore the duration of this ‘noise’ likely indicates that the ultimate decline will be contained, unless new worries emerge or existing concerns become increasingly intensified in the coming weeks or months,” Stovall added.
Nevertheless, S&P Capital IQ believes the S&P 500 will experience a pullback of 5% to 10%, due to sub-par U.S. growth projections, accommodative Fed, mild recession in Europe along with a sluggish recovery and lower Chinese growth. [Seasonal Trends May Weigh on Stock ETFs]
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