Why Correction Worries Are Overblown

By Brian Hershberg | Friday, September 17

A Storm Is Brewing. For a market said to be looking for a narrative, investors seem to be assuming it will be a messy one. While losses weren't as steep as in weeks prior, major U.S. indexes tumbled into the red for the week. 

The Dow Jones Industrial Average lost 0.1% on the week, the S&P 500 lost 0.6%, and the Nasdaq Composite lost 0.5%. Shares of drugmakers fell as an outside Food and Drug Administration advisory panel late today recommended against approving a booster dose of Pfizer's vaccine for anyone 16 and older, while voting in favor of a booster for people 65 and older.

Of course, there's plenty of reason for investors to be cautious, as Barron's economics reporter Lisa Beilfuss writes:  

Covid-19 hospitalizations are rising, and consumer confidence is plummeting. Geopolitical risk is building after the U.S. departure from Afghanistan and China’s regulatory crackdown. Price inflation isn’t relenting. The latest debt-ceiling fight will probably go to the 11th hour, raising the specter of default or a rating downgrade.

Most importantly, fiscal and monetary policy are on track to tighten concurrently, just as economic growth slows sooner and faster than predicted. Tax increases are coming, and fiscal stimulus is fading, while chances are rising that the Fed will this year start reducing the monthly bond purchases it started to support the economy early in the pandemic.

Against that backdrop, many on Wall Street are warning of a correction. They say it's a matter of when, not if. One analyst sees a 10% to 12% correction in the offing, based on the confluence of factors.

But why now, Lisa writes, when the overriding force behind the markets right now—the Federal Reserve and its global counterparts' flood of liquidity—isn't going anywhere. 

Cutting through the noise and flashing lights, there is one number that sums up where markets are and where they go from here. Global central banks are buying about $300 billion in assets a month, notes Torsten Sløk, chief economist at Apollo Global Management. “There are a lot of things going on. But at the end of the day, this is the key.”

Investors should pay heed to the risks because market downturns create buying opportunities, Lisa concludes, and the Fed put is real.

Watch our TV show on Fox Business Fridays at 10 p.m. or 11:30 p.m. ET; Saturdays at 10 a.m. or 11:30 a.m. ET, or Sundays at 7 a.m., 10 a.m. or 11:30 a.m. ET. This week, economist Torsten Sløk on the market outlook and Chamber of Commerce CEO Suzanne Clark on vaccines and taxes.

DJIA: -0.48% to 34,584.88
S&P 500: -0.91% to 4,432.99
Nasdaq:  -0.91% to 15,043.97

The Hot Stock: Thermo Fisher Scientific +6.5%
The Biggest Loser: Unum Group -6.0%

Best Sector: Healthcare +0.1%
Worst Sectors: Materials -2.1%