What might cause a market correction ( 15-20% ) again

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skor99
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What might cause a market correction ( 15-20% ) again

Post by skor99 »

As everybody is fretting over new highs, I would like to have a somewhat different take on this. The market has gone up tremendously over the past few months and is close to all time highs. We have had a black swan event last year and hopefully things will get better on that from here on.

So barring another black swan event, what might cause the market to fall in a correction again? Since it is so high already, I am thinking a 15-20 % drop ( rather than 10% )should be called a correction.

We already have the election behind us and it is clear one party will control the govt, so no more surprises there. Any triggers people can think of ? Or will it just chug along this year at very low rate ?
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Re: What might cause a market correction ( 15-20% ) again

Post by Soon2BXProgrammer »

the market is just like a toddler. It will throw a temper tantrum of 10% for no reason.

When the tide goes out 10%, some people without pants on will sell and force it farther.
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Re: What might cause a market correction ( 15-20% ) again

Post by jebmke »

skor99 wrote: Wed Jan 13, 2021 10:14 am So barring another black swan event, what might cause the market to fall in a correction again? Since it is so high already, I am thinking a 15-20 % drop ( rather than 10% )should be called a correction.
What difference does it make what it is called?
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Re: What might cause a market correction ( 15-20% ) again

Post by 50ismygoal »

Does anyone know what caused the December 2018 drop of almost 20%?
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Re: What might cause a market correction ( 15-20% ) again

Post by Soon2BXProgrammer »

50ismygoal wrote: Wed Jan 13, 2021 10:22 am Does anyone know what caused the December 2018 drop of almost 20%?
https://www.cnbc.com/2019/01/09/markets ... -come.html

Mostly a toddler temper tantrum.
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Re: What might cause a market correction ( 15-20% ) again

Post by am »

Market trades at all time highs frequently (6.7% of all trading days). It corrects every year or so on average. Valuations have been “high” my entire investing life. So what? Stay the course.
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Re: What might cause a market correction ( 15-20% ) again

Post by Monsterflockster »

skor99 wrote: Wed Jan 13, 2021 10:14 am As everybody is fretting over new highs, I would like to have a somewhat different take on this. The market has gone up tremendously over the past few months and is close to all time highs. We have had a black swan event last year and hopefully things will get better on that from here on.

So barring another black swan event, what might cause the market to fall in a correction again? Since it is so high already, I am thinking a 15-20 % drop ( rather than 10% )should be called a correction.

We already have the election behind us and it is clear one party will control the govt, so no more surprises there. Any triggers people can think of ? Or will it just chug along this year at very low rate ?
It will happen when there’s more sellers than buyers for an extended period. What *could* cause this?

Profit taking, war, market manipulation, climate change, depleted oil reserves, plague, alien invasion... I mean take your pick.
Last edited by Monsterflockster on Wed Jan 13, 2021 10:33 am, edited 1 time in total.
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Re: What might cause a market correction ( 15-20% ) again

Post by Soon2BXProgrammer »

Monsterflockster wrote: Wed Jan 13, 2021 10:31 am Profit taking, war, market manipulation, climate change, depleted oil reserves, plague... I mean take your pick.
Or for no good knowable reason. - Temper Tantrum.
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Re: What might cause a market correction ( 15-20% ) again

Post by HomerJ »

Anything could cause it.

Plan for it happening tomorrow. Because it might.

Look, plan for a 50% drop that takes 5 years to recover. Set an AA that assumes that it happens tomorrow. Because it might.

And then you don't have to worry about it anymore.

The market will crash again. It may just be a correction. It may be a full crash. It may recover quickly. It may take years. No one knows...

Plan around the one of the worse case scenarios, and then you don't have to worry about it anymore.

Being mentally prepared for next crash is very helpful. it doesn't matter what causes it.

If you're young, being prepared for a long crash may still be 100% stocks in retirement accounts with a solid emergency fund. Because you have plenty of time to recover from a stock market crash...

If you're close to or in retirement, it might mean setting a more conservative Asset Allocation, with 5-15 years of expenses in bonds/CDs/etc. Enough money that you don't have sell stocks before they recover.
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Re: What might cause a market correction ( 15-20% ) again

Post by aristotelian »

-Vaccine isn't working as promised.

-Vaccine is working, but Fed changes course to raise interest rates as recovery strengthens.

-Natural boom/bust as valuations increase.

-Some unknown unknown that is totally unpredictable.

I would also distinguish between structural causes and proximate causes. The proximate cause of the GFC may have been Lehman Bros, but the structural cause was massive overleveraging of real estate and stocks throughout the economy.
Last edited by aristotelian on Wed Jan 13, 2021 11:04 am, edited 1 time in total.
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Re: What might cause a market correction ( 15-20% ) again

Post by flyingaway »

When the pandemic is gone, people start taking out money for travels and vacations.
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skor99
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Re: What might cause a market correction ( 15-20% ) again

Post by skor99 »

With the pandemic, it almost seems like the world is adjusting to it , vaccine or not. Hopefully the vaccine is as effective as stated but even if it not, it seems like people will move on.
And yes the unknown black swan event is not predictable. But apart from that, the fed raising interest rates seems very unlikely for a couple more years.
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skor99
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Re: What might cause a market correction ( 15-20% ) again

Post by skor99 »

flyingaway wrote: Wed Jan 13, 2021 10:45 am When the pandemic is gone, people start taking out money for travels and vacations.
Wouldn’t that actually boost the economy ? So the net effect might be zero or even positive
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Re: What might cause a market correction ( 15-20% ) again

Post by TheTimeLord »

skor99 wrote: Wed Jan 13, 2021 10:14 am As everybody is fretting over new highs,
Everybody is rarely of the same opinion, when someone sells someone else buys. In fact if this were a true statement then we would likely have already started a correction.
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Re: What might cause a market correction ( 15-20% ) again

Post by SmallSaver »

Animal spirits.
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Re: What might cause a market correction ( 15-20% ) again

Post by TheTimeLord »

skor99 wrote: Wed Jan 13, 2021 10:46 am With the pandemic, it almost seems like the world is adjusting to it , vaccine or not. Hopefully the vaccine is as effective as stated but even if it not, it seems like people will move on.
And yes the unknown black swan event is not predictable. But apart from that, the fed raising interest rates seems very unlikely for a couple more years.
The ability of The Fed to control anything beyond short term rates is debatable on a medium and long term basis.
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Re: What might cause a market correction ( 15-20% ) again

Post by Dave55 »

skor99 wrote: Wed Jan 13, 2021 10:14 am As everybody is fretting over new highs, I would like to have a somewhat different take on this. The market has gone up tremendously over the past few months and is close to all time highs. We have had a black swan event last year and hopefully things will get better on that from here on.

So barring another black swan event, what might cause the market to fall in a correction again? Since it is so high already, I am thinking a 15-20 % drop ( rather than 10% )should be called a correction.

We already have the election behind us and it is clear one party will control the govt, so no more surprises there. Any triggers people can think of ? Or will it just chug along this year at very low rate ?
Anything can trigger it. No idea how this year will turn out. Ask Tony, he knows (abuss368). :wink:

Dave
Last edited by Dave55 on Wed Jan 13, 2021 10:59 am, edited 1 time in total.
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Re: What might cause a market correction ( 15-20% ) again

Post by Shallowpockets »

I think the BH desire is to see a 50% drop. A 15-20% drop will only cause equivocation and all sorts of posts about should I reallocate anxiety. A 50% drop is pretty clear. Who would wait after that sort of drop?
Last edited by Shallowpockets on Wed Jan 13, 2021 11:06 am, edited 1 time in total.
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Re: What might cause a market correction ( 15-20% ) again

Post by jeff622859 »

With everything happening (past 2 months covid cases at all time highs and ICUs overflowing, riots at US capitol, etc) it seems that the market is totally out of touch with reality as it continues to soar to record highs.

How can the economy be this disconnected from reality? I am curious your guys’ thoughts.
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Re: What might cause a market correction ( 15-20% ) again

Post by goblue100 »

skor99 wrote: Wed Jan 13, 2021 10:14 am We have had a black swan event last year and hopefully things will get better on that from here on.

So barring another black swan event, what might cause the market to fall in a correction again?
We could call the pandemic a black swan event, but it doesn't feel like the reaction was appropriate to what we are going through (IMHO). I feel like there will be more fallout from recent events. Still, I can't predict, so while I've moved a little money from stocks rebalancing there isn't much else to be done.
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Re: What might cause a market correction ( 15-20% ) again

Post by Soon2BXProgrammer »

Shallowpockets wrote: Wed Jan 13, 2021 10:58 am Who would wait after that sort of drop?
Today *might* be the lowest the stock market might be ever again.
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Re: What might cause a market correction ( 15-20% ) again

Post by TheTimeLord »

skor99 wrote: Wed Jan 13, 2021 10:14 am As everybody is fretting over new highs, I would like to have a somewhat different take on this. The market has gone up tremendously over the past few months and is close to all time highs. We have had a black swan event last year and hopefully things will get better on that from here on.

So barring another black swan event, what might cause the market to fall in a correction again? Since it is so high already, I am thinking a 15-20 % drop ( rather than 10% )should be called a correction.

We already have the election behind us and it is clear one party will control the govt, so no more surprises there. Any triggers people can think of ? Or will it just chug along this year at very low rate ?
FYI, the pandemic is generally not considered a Black Swan event by many and a 20% drop is a bear market.
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Re: What might cause a market correction ( 15-20% ) again

Post by skor99 »

Shallowpockets wrote: Wed Jan 13, 2021 10:58 am I think the BH desire is to see a 50% drop. A 15-20% drop will only cause equivocation and all sorts of posts about should I reallocate anxiety. A 50% drop is pretty clear. Who would wait after that sort of drop?
I think the Government/Fed will do all they can to prevent that sort of drop after the 35% drop last year and everything else that has happened. That thought reassures me a bit although at the end nobody knows
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Re: What might cause a market correction ( 15-20% ) again

Post by JoeRetire »

skor99 wrote: Wed Jan 13, 2021 10:14 am As everybody is fretting over new highs, I would like to have a somewhat different take on this. The market has gone up tremendously over the past few months and is close to all time highs. We have had a black swan event last year and hopefully things will get better on that from here on.

So barring another black swan event, what might cause the market to fall in a correction again? Since it is so high already, I am thinking a 15-20 % drop ( rather than 10% )should be called a correction.

We already have the election behind us and it is clear one party will control the govt, so no more surprises there. Any triggers people can think of ? Or will it just chug along this year at very low rate ?
Take a look back and figure out what caused the last market correction that wasn't a black swan.

Are you trying to read the tealeaves and somehow time the market to avoid the next correction? Could you have time the last one?
Last edited by JoeRetire on Wed Jan 13, 2021 11:31 am, edited 1 time in total.
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Re: What might cause a market correction ( 15-20% ) again

Post by jebmke »

skor99 wrote: Wed Jan 13, 2021 11:27 am
Shallowpockets wrote: Wed Jan 13, 2021 10:58 am I think the BH desire is to see a 50% drop. A 15-20% drop will only cause equivocation and all sorts of posts about should I reallocate anxiety. A 50% drop is pretty clear. Who would wait after that sort of drop?
I think the Government/Fed will do all they can to prevent that sort of drop after the 35% drop last year and everything else that has happened. That thought reassures me a bit although at the end nobody knows
There is an alternative view that without deep correction, that capital doesn't get re-allocated properly by weeding out weak players and shifting to strong players. I have no idea which theory is the more correct.
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Re: What might cause a market correction ( 15-20% ) again

Post by Soon2BXProgrammer »

skor99 wrote: Wed Jan 13, 2021 11:27 am
Shallowpockets wrote: Wed Jan 13, 2021 10:58 am I think the BH desire is to see a 50% drop. A 15-20% drop will only cause equivocation and all sorts of posts about should I reallocate anxiety. A 50% drop is pretty clear. Who would wait after that sort of drop?
I think the Government/Fed will do all they can to prevent that sort of drop after the 35% drop last year and everything else that has happened. That thought reassures me a bit although at the end nobody knows
The Government/Fed is indifferent towards the asset prices of equities (directly). They care about the economy and functional markets.

Our Spring of 2020 drop was a drop for two reasons 1) fear and 2) bond market liquidity issues due to #1. These compounded each other. There was fear about how long could businesses operates with what people expected to be was way reduced sales, and so they wanted loans to shore up their balance sheets, but no one wanted to loan them money. these reinforced each other.

While the Gov/Fed stepped in and printed/loaned amble money, it wasn't to prop up equities, but it had the side affect of doing that, because fundamentally, there was nothing wrong with the economy/business cycle/profitability/etc of these businesses.

Hence, the rapid recovery of equities.

This wasn't a normal recession/bear market.

Don't expect the same level of bailout if the main thing being affected is asset prices of equities. (think about this as some people deciding that equity valuations are too high, they sell and go elsewhere, then others sell because valuations are falling, etc).. Or if plainly businesses aren't as profitable for some reason, don't expect a bailout.
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Re: What might cause a market correction ( 15-20% ) again

Post by random_walker_77 »

* The market decides the future outlook isn't as good as was predicted and that paying 38x current earnings is foolish b/c the market won't quickly grow earnings
* Natural business cycle
* war
* political instability
* trade war
* the countries that lend the USA trillions to cover our deficits stop buying our debt, which would cause interest rates to rise, which makes bonds more attractive, which depresses demand for stocks. Plus higher interest rates make it harder for companies to rollover debt
* covid mutates such that the vaccine is useless, and the global lockdown extends longer than anyone expected
* the trillions of stimulus, which haven't triggered inflation, suddenly need to be pulled out of the market when inflation suddenly turns up

Keep in mind that during the depression, the stock market has (briefly) gone down not just 50%, but over 85%. Be diversified, and hold enough bonds so that you won't have to sell your stocks even if things go very wrong.
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Re: What might cause a market correction ( 15-20% ) again

Post by Silas1067 »

My main worry right not is a national, coordinated economic shutdown due to rising virus cases and a botched vaccine rollout

that will cause the markets to implode

I am also worried about valuations and debt levels, and the potential for a Japanese-style economic meltdown

I still own stock in my IRA, but for my other accounts I am very defensive
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Re: What might cause a market correction ( 15-20% ) again

Post by skor99 »

The question then arises what can you be defensive in? Stocks are in a bubble and bonds are in a epic bubble. Cash is not king with paltry interest rates. Real estate is getting frothy as well, and also not sure how can you count on the rental income coming in if everything else implodes. What is left ?
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Re: What might cause a market correction ( 15-20% ) again

Post by Silas1067 »

skor99 wrote: Wed Jan 13, 2021 11:49 am The question then arises what can you be defensive in? Stocks are in a bubble and bonds are in a epic bubble. Cash is not king with paltry interest rates. Real estate is getting frothy as well, and also not sure how can you count on the rental income coming in if everything else implodes. What is left ?
that is the problem right now

I have muni bonds, some convertible securities ETFs and CEFs, a gold CEF, and Vanguard bond funds

also have some international

I wouldn't go anywhere near real estate in this environment, and have no interest in REITs either.
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Re: What might cause a market correction ( 15-20% ) again

Post by HomerJ »

skor99 wrote: Wed Jan 13, 2021 11:49 am The question then arises what can you be defensive in? Stocks are in a bubble and bonds are in a epic bubble. Cash is not king with paltry interest rates. Real estate is getting frothy as well, and also not sure how can you count on the rental income coming in if everything else implodes. What is left ?
Bonds are in an "epic" bubble? what does that mean... Bonds are not likely to return much for a while, but they are not more dangerous than stocks which you think are just in a "normal" bubble.

Are you investing for the long-term or not?

Long-term money goes in stocks, you don't have to worry about a crash. The 10% long-term historical nominal return INCLUDES the crashes. Read that again. You didn't have to avoid the crashes in stocks for good long-term returns.

Short-term money goes in bonds/cash. Sure they aren't returning much, but inflation is low, so they are mostly breaking even. That's defensive. That's money to spend if you lose your job when stocks crash.
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Re: What might cause a market correction ( 15-20% ) again

Post by sperry8 »

skor99 wrote: Wed Jan 13, 2021 10:14 am As everybody is fretting over new highs, I would like to have a somewhat different take on this. The market has gone up tremendously over the past few months and is close to all time highs. We have had a black swan event last year and hopefully things will get better on that from here on.

So barring another black swan event, what might cause the market to fall in a correction again? Since it is so high already, I am thinking a 15-20 % drop ( rather than 10% )should be called a correction.

We already have the election behind us and it is clear one party will control the govt, so no more surprises there. Any triggers people can think of ? Or will it just chug along this year at very low rate ?
The why doesn't matter.
The when is not knowable.
Intra year 14% drops occur each year, on average.
Markets rise ~10% annually, on average.
Markets are volatile (~24% swings annually - see above datapoints).

None of the above is actionable. Stay the course.
Last edited by sperry8 on Wed Jan 13, 2021 12:14 pm, edited 1 time in total.
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Re: What might cause a market correction ( 15-20% ) again

Post by firebirdparts »

The headlines that they make up every day are just baloney, but if I was going to guess, I would guess monetary tightening by the fed. If they start selling off what they purchased during the recent unpleasantness, bond yields will increase some, and if they start talking like they are okay with this, and they also want to increase the funds rate, you'd see stocks sell off.
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Re: What might cause a market correction ( 15-20% ) again

Post by KneePartsPro »

skor99 wrote: Wed Jan 13, 2021 10:14 am Any triggers people can think of ?
Triggers people can think of are likely already priced in. I'd focus more on the triggers people can't think of. :happy
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Re: What might cause a market correction ( 15-20% ) again

Post by Forester »

skor99 wrote: Wed Jan 13, 2021 10:14 am As everybody is fretting over new highs, I would like to have a somewhat different take on this. The market has gone up tremendously over the past few months and is close to all time highs. We have had a black swan event last year and hopefully things will get better on that from here on.

So barring another black swan event, what might cause the market to fall in a correction again? Since it is so high already, I am thinking a 15-20 % drop ( rather than 10% )should be called a correction.

We already have the election behind us and it is clear one party will control the govt, so no more surprises there. Any triggers people can think of ? Or will it just chug along this year at very low rate ?
I think we get a decent correction in the first quarter; the crypto market is rolling over which feeds into wider market nervousness. Also yields are rising, which may tempt some to take risk off the table.
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Re: What might cause a market correction ( 15-20% ) again

Post by MinnGuyInvesting »

What is the measurement that tells us the market is in need of a correction?

Is there some fundamental that tells us this?
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Re: What might cause a market correction ( 15-20% ) again

Post by Soon2BXProgrammer »

MinnGuyInvesting wrote: Wed Jan 13, 2021 12:28 pm What is the measurement that tells us the market is in need of a correction?

Is there some fundamental that tells us this?
yep. when the person at the front desk at the dentist, starts to talk about the stock market... its time.
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Re: What might cause a market correction ( 15-20% ) again

Post by WildBill »

Monsterflockster wrote: Wed Jan 13, 2021 10:31 am
skor99 wrote: Wed Jan 13, 2021 10:14 am As everybody is fretting over new highs, I would like to have a somewhat different take on this. The market has gone up tremendously over the past few months and is close to all time highs. We have had a black swan event last year and hopefully things will get better on that from here on.

So barring another black swan event, what might cause the market to fall in a correction again? Since it is so high already, I am thinking a 15-20 % drop ( rather than 10% )should be called a correction.

We already have the election behind us and it is clear one party will control the govt, so no more surprises there. Any triggers people can think of ? Or will it just chug along this year at very low rate ?
It will happen when there’s more sellers than buyers for an extended period. What *could* cause this?

Profit taking, war, market manipulation, climate change, depleted oil reserves, plague, alien invasion... I mean take your pick.
Howdy

Just to point out, in equity markets in aggregate there are never more sellers than buyers. Every share sold is bought by somebody, down to the last share.

W B
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Re: What might cause a market correction ( 15-20% ) again

Post by TheTimeLord »

WildBill wrote: Wed Jan 13, 2021 12:38 pm
Monsterflockster wrote: Wed Jan 13, 2021 10:31 am
skor99 wrote: Wed Jan 13, 2021 10:14 am As everybody is fretting over new highs, I would like to have a somewhat different take on this. The market has gone up tremendously over the past few months and is close to all time highs. We have had a black swan event last year and hopefully things will get better on that from here on.

So barring another black swan event, what might cause the market to fall in a correction again? Since it is so high already, I am thinking a 15-20 % drop ( rather than 10% )should be called a correction.

We already have the election behind us and it is clear one party will control the govt, so no more surprises there. Any triggers people can think of ? Or will it just chug along this year at very low rate ?
It will happen when there’s more sellers than buyers for an extended period. What *could* cause this?

Profit taking, war, market manipulation, climate change, depleted oil reserves, plague, alien invasion... I mean take your pick.
Howdy

Just to point out, in equity markets in aggregate there are never more sellers than buyers. Every share sold is bought by somebody, down to the last share.

W B
Your are correct, people probably should say "More potential sellers than buyers at the current price" thus the price needs too be lower by sellers to entice buyers just like with anything else.
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Re: What might cause a market correction ( 15-20% ) again

Post by MinnGuyInvesting »

Soon2BXProgrammer wrote: Wed Jan 13, 2021 12:31 pm
MinnGuyInvesting wrote: Wed Jan 13, 2021 12:28 pm What is the measurement that tells us the market is in need of a correction?

Is there some fundamental that tells us this?
yep. when the person at the front desk at the dentist, starts to talk about the stock market... its time.
Popular saying, but how do we know it's true in the days of app investing like Robinhood and a generation who were teens during the housing bubble?

Stock market P/E ratios increased when online brokers appeared. The dot.com bubble happened, but P/E values never really returned long-term to pre-bubble levels.

Or do we know these factors are not causing a greater demand (thus higher P/E ratios):
- Increased access to online brokerages
- Increased access to app investing
- More education about investing
- A generation of "savers" who grew up through 2007-2010 who put an emphasis on saving / investing.
Index ETF's 41% |ARK Funds 36% | AAPL 4% | TSLA 3% | GOOGL 1% | AMZN 1% |Other stocks 3% | BTC/ETH 4% | | | | Tracking my porfolio: https://www.bogleheads.org/forum/viewtopic.php?p=5745280#p5745280
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alpenglow
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Re: What might cause a market correction ( 15-20% ) again

Post by alpenglow »

Monsterflockster wrote: Wed Jan 13, 2021 10:31 am
skor99 wrote: Wed Jan 13, 2021 10:14 am As everybody is fretting over new highs, I would like to have a somewhat different take on this. The market has gone up tremendously over the past few months and is close to all time highs. We have had a black swan event last year and hopefully things will get better on that from here on.

So barring another black swan event, what might cause the market to fall in a correction again? Since it is so high already, I am thinking a 15-20 % drop ( rather than 10% )should be called a correction.

We already have the election behind us and it is clear one party will control the govt, so no more surprises there. Any triggers people can think of ? Or will it just chug along this year at very low rate ?
It will happen when there’s more sellers than buyers for an extended period. What *could* cause this?

Profit taking, war, market manipulation, climate change, depleted oil reserves, plague, alien invasion... I mean take your pick.
I was thinking alien invasion too.
Soon2BXProgrammer
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Re: What might cause a market correction ( 15-20% ) again

Post by Soon2BXProgrammer »

MinnGuyInvesting wrote: Wed Jan 13, 2021 12:42 pm
Soon2BXProgrammer wrote: Wed Jan 13, 2021 12:31 pm
MinnGuyInvesting wrote: Wed Jan 13, 2021 12:28 pm What is the measurement that tells us the market is in need of a correction?

Is there some fundamental that tells us this?
yep. when the person at the front desk at the dentist, starts to talk about the stock market... its time.
Popular saying, but how do we know it's true in the days of app investing like Robinhood and a generation who were teens during the housing bubble?

Stock market P/E ratios increased when online brokers appeared. The dot.com bubble happened, but P/E values never really returned long-term to pre-bubble levels.

Or do we know these factors are not causing a greater demand (thus higher P/E ratios):
- Increased access to online brokerages
- Increased access to app investing
- More education about investing
- A generation of "savers" who grew up through 2007-2010 who put an emphasis on saving / investing.
Oh... i'm not talking about any person at the front desk at the dentist... I'm talking about the one at the dentist I go to... She has been a great predictor of future returns i really hope she doesn't retire any time soon.
runner3081
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Re: What might cause a market correction ( 15-20% ) again

Post by runner3081 »

Terrorist attack at or worse than 9/11 might push things that way.
Tigermoose
Posts: 685
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Re: What might cause a market correction ( 15-20% ) again

Post by Tigermoose »

Here are some reasons...

1. Panic due to some unforeseen event (virus, war, etc)
2. A better investing alternative (such as bonds that have a higher interest rate)
3. If the money supply starts getting restricted and/or the velocity of money slows down
4. Political / tax changes that reduce the perceived future value of equities
Institutions matter
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CyclingDuo
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Re: What might cause a market correction ( 15-20% ) again

Post by CyclingDuo »

skor99 wrote: Wed Jan 13, 2021 10:14 am As everybody is fretting over new highs, I would like to have a somewhat different take on this. The market has gone up tremendously over the past few months and is close to all time highs. We have had a black swan event last year and hopefully things will get better on that from here on.

So barring another black swan event, what might cause the market to fall in a correction again? Since it is so high already, I am thinking a 15-20 % drop ( rather than 10% )should be called a correction.

We already have the election behind us and it is clear one party will control the govt, so no more surprises there. Any triggers people can think of ? Or will it just chug along this year at very low rate ?
Because it is on the index card as the first bullet point. What causes it doesn't matter. Just book it, expect it, and deal with it. It's all part of the natural rhythm. :beer

There is, on average, at least one intra year decline that averages around 14%...

Image

Some years it is more, some years it is less. Regarding the S&P 500 and intra year drops, we had a drop of 33.9% (hello third bullet point!!!) and a drop of 9.6% in 2020. In 2019, we had a drop of 6.8%. In 2018, we had drop of 10.2% and 19.8%. In 2017 - we skipped any drops of decent measure. In 2016, we had a drop of 13.3%. In 2015, we had a drop of 12.4%. And so on, and so forth.
https://www.yardeni.com/pub/sp500corrbear.pdf

CyclingDuo
"Save like a pessimist, invest like an optimist." - Morgan Housel
Sic Vis Pacem
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Re: What might cause a market correction ( 15-20% ) again

Post by Sic Vis Pacem »

HomerJ wrote: Wed Jan 13, 2021 12:05 pm
The 10% long-term historical nominal return INCLUDES the crashes. Read that again.
You are a saint for the patience with which you repeat that nugget on this board. And I both appreciate and reflect upon it every time. Thank you.
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Fat-Tailed Contagion
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Re: What might cause a market correction ( 15-20% ) again

Post by Fat-Tailed Contagion »

Almost an infinite data set of possibilities.

Create an Investment Policy Strategy with Rebalancing Program and stick to it.

Re-evaluate the IPS every 6-12 months and if nothing significantly changes, stick with it.

If something changed, run it by 3-5 people before implementing your new IPS and stick with it.

REPEAT.
“The intelligent investor is a realist who sells to optimists and buys from pessimists.” | ― Benjamin Graham, The Intelligent Investor
KlangFool
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Re: What might cause a market correction ( 15-20% ) again

Post by KlangFool »

OP,

1) I don't know and I do not care.


2) If you need to know and care, you are not prepared.


3) It is more productive to be prepared versus listening to "Noise" pretending to be news.


KlangFool
neb2020
Posts: 90
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Re: What might cause a market correction ( 15-20% ) again

Post by neb2020 »

skor99 wrote: Wed Jan 13, 2021 10:14 am As everybody is fretting over new highs, I would like to have a somewhat different take on this. The market has gone up tremendously over the past few months and is close to all time highs. We have had a black swan event last year and hopefully things will get better on that from here on.

So barring another black swan event, what might cause the market to fall in a correction again? Since it is so high already, I am thinking a 15-20 % drop ( rather than 10% )should be called a correction.

We already have the election behind us and it is clear one party will control the govt, so no more surprises there. Any triggers people can think of ? Or will it just chug along this year at very low rate ?
Barring COVID-19, assuming it didn't happened, it would be almost 13 years since the 2008 recession. A proper recession is long overdue, don't you think?
Coburn
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Re: What might cause a market correction ( 15-20% ) again

Post by Coburn »

OP,

What is the motivation behind your question? Do you have money to deploy and can't stomach the idea of buying at these high prices and wishing for a drop? Or something else perhaps?

Forgive my cynicism, but many of the regular questions here seems to be from this somewhat darker side.

There's a lot of greed and regret from many in their choices this past year on not jumping in the market when the prices are inviting...all in hindsight, of course.

Klangfool perhaps strikes the right philosophic bent...he neither knows or cares.

Anyone who has money on the side and not deployed in the market is playing a waiting game. It's anyone's guess if that gamble pays off.
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