What happened?
The US stock market has had its largest correction since 1987. Many call the 1987 correction a "crash" even though it was an up year overall. Investors that stayed fully invested in 1987 did well. Those that sold out on fear at the bottom in 1987 lost money. I believe the "correction" we are in now is similar to that of 1987 which is not a bear market characterized by sustained low prices twenty percent or more off the high levels. Historically, sustained is six months or longer
Are you playing word games?
One can argue that we've been in a bear market since its peak in July 1998 since the Russell 2000 was off 29%. Well, you have to consider that the Russell2000 is not the broad market which was off only 19%, below the 20% bear trigger level. Also, this level needs to be sustained otherwise I just consider it a downward spike on a correction.
What should you do?
Take a close look at how well you have been sleeping as the market has dropped to nearly twenty percent in this recent downturn. If you have been having trouble sleeping due to worry, this should tell you to consider being less aggressive with your investments. Several people I know have decided to do just this and have scaled back their plans to invest heavily in stocks and take a more balanced approach. All these formulas like "equities percentage equal 100 percent less your age" are just rules of thumb to use as guidance. Your health and enjoyment in life are what really matter so invest accordingly.
What I believe
I believe we are in the middle of a very long overdue correction which will see the market on its way to or setting new highs without it going much lower than its recent low for DJIA 7400. Greenspan says Friday Sept 4th that, unlike 1929, the US knows it is not an oasis and will ease interest rates if the world starts to go into a recession. It comes as no surprise, unless you are a bear, that the World no longer has to project for the worst case scenario and their markets recover after Greenspan's words. The US markets are closed for Labor Day and the World markets log a second up day. Investors wake up Tuesday to find the sky is still over their heads and bid the market up in a huge rally with good breadth.
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