S&P 500 Could See A 20% Correction This Summer

S&P 500 Could See A 20% Correction This Summer

$SPY

The S&P 500 Index (NYSEArca:SPY) is hanging within 1% of its record highs, but do not be fooled.

“The financial markets are establishing an extreme that we expect investors will remember for the remainder of history, joining other memorable peers that include 1906, 1929, 1937, 1966, 1972, 2000 and 2007,” writes John Hussman in his weekly commentary.

“The failure to recognize this moment as historic is largely because investors have been urged to believe things that are not true, have never been true, and can be demonstrated to be untrue across a century of history.”

The Big Q: What are the un-truths?

The Big A: The principal one is that the Federal Reserve is boosting financial asset prices.

“In fact the primary driver of financial markets in recent years has been pure speculative risk seeking. While risk-seeking is encouraged by monetary easing, it is not a reliable outcome.”

The Fed has kept its federal funds rate target at a record low for 6.5 years, and its balance sheet has ballooned to $4.5-T.

The S&P 500 index saw its last correction of 10% or more in Y 2011. In fact, it dove 20% in the July-August (Summer) frame that year.

And Y 2015 is a pre-presidential-election year.

In the 1st 5.5 months of each year, the S&P 500 Index traded in a narrow range. In both years, the index was little changed on 12 June from the beginning of the year. The S&P 500 is showing about a 2.0% YTD gainer.

When the S&P 500 reached a record high in late April, the percentage of S&P 500 stocks trading above their 50-Day SMA fell short of its February high.

So, this Summer may turn into a tough time for stocks.

Stay tuned…

HeffX-LTN

Paul Ebeling

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