Headed For a Fall
The market's stealth run-up has some fearful of a correction
Yet in recent quarters, "corporate profits have been fairly resilient," says Chris Orndorff, head of equity investments for Payden & Rygel. And if profits continue to surprise on the upside, "it should give some positive support to the equity market," he says. Orndorff does not believe a bear market or even a correction is inevitable; he calls "a pause or sideways market" more likely.
Experts say the stock market perpetually climbs a wall of worry--so the laundry list of threats facing equities is nothing new. "People can argue that Iran is now a big threat, there's the question of the Fed overshooting, there's avian flu--it all makes sense," says Ernest Ankrim, chief investment strategist for the Russell Investment Group. But he notes that past crises have roiled the markets, such as the Asian currency crisis and the implosion of the Long-Term Capital Management hedge fund in the late 1990s. "It's not like we haven't had shocks to the system," Ankrim says. Somehow, stocks have managed to climb higher.
If there's a silver lining to all this talk of a pullback, it's that most investors--be they bears or bulls--foresee an end-of-the-year bounce for stocks. Fourth quarters of midterm election years have historically been the best period for equities. According to S&P, the average gain of blue-chip stocks in the final three months of midterm election years is 7.6 percent. "It's going to be a great buying opportunity," says Hirsch of the Stock Trader's Almanac.
So, the moral of this story: If you plan to sell in May and go away, don't forget to come back in time for Halloween.