The Perspective on a Potential 1Q20 Equity Market Pullback Array ( [cookie] => 2574b7-6eb625-39c2d3-6b3d1d-8a62e1 [current_usage] => 2 [max_usage] => 2 [current_usage_crypto] => 2 [max_usage_crypto] => 2 [lock] => 1 [message] => [error] => [active_member] => 0 [subscriber] => 0 [role] => [visitor_id] => 148435 [user_id] => [reason] => [method] => ) 1 and can accesss
After a historic rebound in 2020, the question investors are asking the most is are we heading into year-end correction? The short answer is I’m expecting equity markets to begin a correction, or at least a pause, in the early part of 1Q21. However, I caution investors from overreacting to a pending pullback.
As I have mentioned from time to time, Peter Lynch, Fidelity’s star manager of the Magellan Fund between 1977-1990, had excellent advice for investors when he stated “Far more money has been lost by investors preparing for corrections than has been lost in the corrections themselves”.
The important technical point is to build a longer-term perspective to understand the ongoing volatility that develops every year. I rely on three main investment horizons in my investment roadmap. 1) Consider the long-term, secular backdrop. 2) Markets in their current 3-4 year cycle that responds to liquidity controlled by the federal reserve and to economic growth. And 3) what is the tactical, multi-month outlook that tends to respond to the earnings cycle, investor sentiment, and technicals, such as overbought and oversold readings?
1) From a secular trend and cycle perspective, equity markets have ebbed and flowed, rallied and consolidated, around a 17-year cycle. That may seem a bit odd at first glance but these long-term cycles fit well with the demographic and life cycle of each generation. My analysis suggests equity markets are likely in a period of expansion that could last into the early-mid 2030s. If the secular trend that began in 2000 continues, a move to S&P 14,000 is not unreasonable from a technical perspective. Now that’s food for thought…and debate!


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