The WSJ reports,"former market leaders such as biotechnology and Internet-related stocks have fallen 25% and more from early-year highs. Many once-strong small stocks have taken hits, too. Money is shifting to safer, dividend-paying stocks such as utilities and telecom stocks.
Broad indexes, meanwhile, have been in a rut all year. The Dow Jones Industrial Average hit a record 16583.34 Friday, but it is up just seven points, or 0.04%, since the end of December.
The big question: How bad can the selling get? In some past rotations, trouble for the highflyers brought down the broad market. In others, the broad market held up well. After studying the historical data, many analysts and money managers think this rotation still could damage the broad market, but not as badly as in some past cases".
“I think it is going to be one of the headwinds that prevent us from motoring higher from here,” said Leo Grohowski, chief investment officer at BNY Mellon Wealth Management, which oversees $185 billion in New York. He says stocks can rise a modest 4% this year and continue rising next year, but like many people, he worries that the process could be bumpy.
Ned Davis Research in Venice, Fla., has conducted several studies of past market rotations and found two varieties: the really nasty and the merely difficult.
"Since 1989, the bad ones were in times of economic trouble, meaning the early 2000s and 2008. Then, each sharp decline by market leaders led a drop of 27% to 48% in the S&P 500 Index. But from 1989 to 1999, when the economy was more stable, rotations away from market leaders led to more-modest broad-market declines: 5% to 12%, with one of 17%".
"Bank of America Merrill Lynch, meanwhile, found stocks, commodities, interest-rates and the dollar are acting much as in 2005 and 2006. Back then, stock indexes didn’t peak until October 2007. If the comparison proves accurate, trouble could lurk, but not immediately.
Of course, sifting through market history is an inexact science at best. The analysts who do these studies all warn that they offer reference points, not predictions".
"No one knows how much pressure investors will feel to sell in coming months. If some widely held stocks fall heavily and investors using borrowed money get demands for more collateral, they could be forced to sell other holdings, provoking a broader decline".
No one has said there won't be a correction this time.
Too much complacency, is a bad omen.
No one has said there won't be a correction this time.
Too much complacency, is a bad omen.
