This morning, David Rosenberg discussed the possibility of a 30-40% correction in the equity markets. Rosenberg thinks we could go as low as 850 on the S&P:
“There have only been two other times when the stock market ran parabolically up from a low in barely over a year, as was the case this time around (+80% from March 2009 to April 2010): the 112% surge from June 1, 1932 to September 7, 1932; and the 116% runup from March 2, 1933 to July 18, 1933. In the first case, we had a 40% correction and in the second, the correction was 34%. So, we are talking here about the prospect of a pretty hefty reversal in the S&P 500 that could very easily take the index down to as low as 850, if the history of these types of givebacks is any indication.”
I don’t disagree with the potential of a 30-40% correction, however, I do disagree with his extrapolation from the Great Depression. This is not the Great Depression despite what many would have you believe. Most importantly, however, the U.S. economy of today is VASTLY different from the U.S. economy of the 1930’s so equity market performance can be expected to be different as well. These two data points might as well come from the equity market in Mars as far as I am concerned.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.