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What’s to come after this correction?

What’s to come after this correction?

November 28, 2023

The stock market had modest gains during a quiet Thanksgiving holiday week. The market is currently within 1% of the July 27th highs and close to exiting this multi-month correction (a 10-20% drop). There are a few different scenarios to watch for in the coming months as the correction comes to an end.

First, a new pullback (5-10% drop) or correction can begin at any time. Historically the market experiences 1-3 pullbacks a year but corrections are less frequent, with one around every 1 to 2 years. The frequency of pullbacks to corrections averages 3 to 1.

Now the good news. Many major stock market indexes are 5-10% below their all-time highs which were set roughly 2 years ago. Nearing an all-time high allows us to deduce some likely near future scenarios because of the significance of the price point. The all-time high on the S&P 500 is 4818 and it’s very much within reason that the market can get to that all-time high before the next pullback or correction occurs. However, 4818 will likely act first as a point of significant resistance to the upside and once the market rises above that level, it will then act as a support level. This information gives us two likely scenarios for the next pullback or correction. The first is that the market gets right around 4818 and then temporarily drops 5 - 10+% before rising back to 4818 and surpassing it. The second scenario is that the market pushes through the resistance level at 4818 and gets to around 5100 – 5200, before temporarily dropping back to 4818 as a support level. Either of these scenarios could reasonably occur in the next couple of quarters and they would both offer a good buying opportunity for investing excess cash as the bull market picks up steam.

Photograph by: Alexander Lyashkov on Unsplash

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