Is this a Charlie Brown Correction?
Submitted by ClearBridge Wealth Management on April 22nd, 2018April 17, 2018
Can Charlie Brown Help Investors?
“In the book of life, the answers aren’t in the back.” - Charlie Brown
Markets are not easy to navigate, as fear and greed can often get in the way of prudent investment decisions. As much as we would like a script to follow, it isn’t that simple. Much like the quote from Charlie Brown on life, there is no clear answer as to how markets will bottom.
“You can have V-bottoms, W-bottoms, or U-bottoms, for instance; but it appears more likely that this particular bottom may look like a Charlie Brown shirt instead of a letter of the alphabet. As far as a potential market bottom is concerned, the chart of the day illustrates our belief that we appear to be beyond the alphabet and into Charlie Brown territory:
As you can see in the next chart, the S&P 500 Index continues to find support near its 200-day moving average and recently bounced near the early February lows. Additionally, the retest of the February lows took place on lower volume, which is a positive sign that we could be nearing the end of this bottom process.
The last time we saw Charlie Brown-esque volatility was from August 2015 to February 2016 and it took six months to fully recover from the bottom. One major difference between then and now is we were in an earnings recession in 2015 and credit markets were flashing potential recessionary warnings. Fortunately, this time earnings are expanding nicely and credit markets have remained fairly calm.
In fact, we are seeing signs that higher prices could be on the horizon.
As always if you have any questions or concerns, I encourage you to contact me.