As the third quarter of 2014 closed, we witnessed a dramatic increase in market volatility. Is this the beginning of a market correction, indicative of underlying weakness in the economy, or both?
It appears that economic fundamentals are intact and generally improving; however, market volatility and recent moves in risky assets (stocks, commodities, etc) point to a correction which could portend a longer market downturn. KilterHowling manages portfolios to always focus on downside protection. So while we are not trying to predict the next market move – which is impossible – we are aware of changing conditions and how our portfolios are positioned.
In this post we review some market indicators and recent data.
Market Moves: Is the Turn Here?
Into the end of September we saw:
- Volatility increase as measured by the VIX
- Small and mid-cap stocks extended their losses
- The long-run adjusted price/earnings ratio of the market reach all time highs
- Bullish investor sentiment decline below it’s long term average
- The price to sales ratio of the S&P 500 reach levels not seen since 2000
- A near peak in investor bullishness and use of leverage to invest
- A decline in the global stock index – the ACWI – below its 200 day moving average.
Each of these is shown in a chart below. Is it time for a market downturn or are we just in choppy waters?