The S&P 500 gained 2.5 percent Tuesday, helping investors forget about the big drop that happened in August.
Now, the question is whether or not the 14 percent correction is over.
If it is, as many seem to believe, stocks should be headed back to new highs.
One problem with the idea that the correction has ended is that nothing has been corrected.
Monetary and fiscal policies are still unsettled, just like they were a month ago.
Federal Reserve officials still haven’t raised rates or even held a meeting and decided not to raise rates. Government officials haven’t passed a budget for next year or even held a meeting to share what they’re thinking about for a budget.
Corporate earnings haven’t changed in the past month. The only real difference is that estimates for 2016 earnings provided by Standard & Poor’s are lower than they were a month ago. That seems to be more bearish than bullish.
Economic news is also not really improving. Unemployment dropped to 5.1 percent after 173,000 jobs were added in August. Of course unemployment probably would have gone up if it hadn’t been for the 261,000 people who left the work force
For whatever reason, more people are choosing not to work. That is good news for the unemployment rate but fewer workers probably isn’t good news for economic growth. Fortunately for market bulls that would be a long-term problem and investors seem to be focused on the short term.
Looking at the news, there is no reason to expect stocks to reach new highs soon and there is no reason to believe the correction or bear market has ended.
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