Stock correction is ‘far from over,’ but investors need to chill: Rosenberg
September has been a rough month for stocks and economist David Rosenberg predicts more pain is in store for investors — but that’s not necessarily a bad thing.
The S&P 500 is down more than two per cent for the month, while the S&P/TSX Composite Index has sunk about 1.5 per cent. Much of the selloff has occurred since last Thursday, amid fears that an American rate hike was set for next week. Treasuries, German bunds and Japanese bonds all saw yields spike.
U.S. Federal Reserve Governor Lael Brainard soothed those fears Monday, saying a hike next week is too early and that a December hike is more likely.
“After a month and a half of eerie calm, volatility is back in vogue,” said Rosenberg. “But the problem in today’s market, where investors constantly need central banks to hold their hands, [is that] a three per cent decline feels like a 10 per cent correction.”
But as Rosenberg points out, small dips like this are incredibly common. The S&P 500 has pulled back by three per cent no fewer than 66 times since it bottomed in 2009, while five per cent pullbacks have happened 20 times.
Rosenberg isn’t too concerned with rising bond yields either, which some have warned could set the market up for a “bond shock” later this month. He notes that the 10-year U.S. Treasury yield has risen 40 basis points 14 times in the past seven years.
“These hiccups happen, on average, twice a year,” he said. “And each one tends to get fatigued at the 200-day moving average and open up a buying opportunity at better price levels than at the interim yield lows.”
September and October are traditionally volatile months for stock markets. And Rosenberg predicts investors are in for more damage in the coming months. But he cautions against selling.
“So … my advice is to chill, recognizing that the correction phase in equities is probably far from over and that we are still some 15 basis point away on the 10-year for a real serious technical test.”