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Stock Market Correction Clock is Ticking

It’s been 395 days since the last stock market correction of at least 5% - a new record. Does that mean a correction is imminent? Not necessarily.

It’s official: U.S. stocks are in the longest period of speed bump-free trading in market history. It has now been 395 trading days without a stock market correction of at least 5%, a new record, surpassing the 394-day streak in the late 1990s. Will the good times on Wall Street ever end?

Stock market trends tend to last longer than people expect, as our president and chief investment strategist Tim Lutts is fond of saying. But having now entered uncharted territory, it would be wise to take an optimistic-yet-cautious approach in your investing—an approach our analysts have been preaching to their subscribers for months.

Here is a sampling of what Mike Cintolo, our resident growth investing expert, wrote to his Cabot Growth Investor advisory readers about the current state of the market last week:


“In the short-term, we’re probably getting close to the point of a pullback or pause …

“Given that we’ve already had a big run in recent months, some uneasiness during earnings season wouldn’t be shocking. That doesn’t mean you should bail out of your winners and try to buy them back lower (a strategy that, as attractive as it sounds, rarely works out well). But it is a sign to be choosy on the buy side, looking for low-risk entry points, preferably on dips.

“All that said, we’ll continue to point out that the market’s unusual strength of late very likely is a sign that this bull market has further to run—major uptrends almost always end after a period (weeks or months) of topping out, so the odds of a meaningful high soon are small.”

As Mike says, there are no real signs of a stock market correction on the horizon. Volatility remains low, with the CBOE Volatility Index (VIX) at 11, well below its historical average. The S&P has closed below its 25-day moving average just once since the start of September. New corporate tax cuts and improved earnings growth are helping sustain investor optimism. And only 23 stocks on the New York Stock Exchange are hitting 52-week lows, well below the 40 (or above) that we consider a sign of a stock market top. A whopping 120 NYSE stocks, by the way, are hitting 52-week highs as of this writing.

This angst-free market can’t last forever, and won’t. You should eventually expect some short-term turbulence—which at some point will likely translate to a 5% stock market correction. But not yet.

Tighten your loss limits, keep your stocks on a short leash in case the market suddenly starts to head south in a hurry. But don’t start preemptively selling stocks just because history says a stock market correction is imminent. If you do, you’re likely to miss out on even more gains in the coming days, weeks … and potentially months.

Yes, the stock market correction clock is ticking. But it’s a figurative clock. Like baseball, bull markets have no clock. We’re well into extra innings of the correction-less rally. But there may still be many more innings to go.


Chris Preston is Cabot Wealth Network’s Vice President of Content and Chief Analyst of Cabot Stock of the Week and Cabot Value Investor .