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Correction predictions

Postmillennialism —  Leave a comment

When the Dow Jones Industrial Average was down more than 200 points, on March 6, analysts immediately said it was the long-awaited correction. The tipping point seemed to be the Institute for Supply Management’s nonmanufacturing index, released the day before. Its price index, which measures inflation, jumped significantly.

A separate report, released the same day, had manufacturing, which has fueled the recovery, declining in January for the first time in three months. Data from outside the United States also weighed down the markets. China cut its growth goal to 7.5 percent from an 8 percent target, and Brazil, which had been a growth powerhouse, said last year’s GDP growth was a meager 2.7 percent.

So the market, as expected, went down. What was not expected is that it didn’t stay down. By Friday, the S&P was actually up for the week. The plunge became the correction that didn’t actually correct anything.

So is a real correction still coming? Almost certainly. Free-marketers say artificial stimulus from the government, financed by unsustainable debt, fueled the recovery. They say the economy is like a soufflé with a lot of hot air baked in: A loud noise before it cools will cause the whole thing to fall flat.

Mainstream Wall Street analysts say much the same thing. Adam Parker, U.S. Equity Strategist at Morgan Stanley, says “risk aversion” will make a comeback. Any sign of trouble will likely motivate investors to take their profits and dump their stocks, and the longer it takes, the harder the fall will be. He expects the S&P to drop by 15 percent from current levels sometime before year-end.

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