Maybe, but the better question is whether the latest decline is the start of an extended slide or just a garden variety correction. Alas, no one knows the answer. Indeed, no one ever does. But we can review the basics for developing calculated risk estimates.
Another clue for thinking that equities, two weeks ago, had gone too far too fast: low volatility, as defined by the. When market volatility is low, it’s only a matter of time before it rebounds, as it has in recent days. Round and round we go. No, you can’t time the market based on this indicator, but it’s useful to put into the toolkit for managing expectations.
But all this is meaningless without context from the investor’s perspective. Deciding how, or if, to adjust your portfolio should be highly influenced by several factors that are specific to you, starting with the key variables: investment time horizon and risk tolerance. With a clear-eyed view of where you stand on these points, you can decide if the current market conditions are noise or signal.
The point is that there’s only one US stock market, but reading the tea leaves has many interpretations, depending on where a given investor sits on the time horizon/risk tolerance scale. What looks like noise to one investor may be highly significant to another.
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