After a record increase in stock values in the first days of 2018, the market has returned to Earth and as of Monday, February 5, the S&P 500 is down -0.80% year to date. If we arrived at a negative -0.80% in equal increments during the last five weeks, no one would think anything of it!
What caused the sharp pullback? Is this the beginning of an extended bear market? What is going to happen this week? Those are a few of the questions people are pondering.
Perhaps the first question that should be considered is why did the market have such a strong move upward in the last few weeks? The underlying economic strength we are experiencing certainly creates a good foundation for corporate profit growth. Profit growth is generally correlated with higher stock prices and profit growth is robust. We believe the move up in the market was in part fueled by this.
What caused the pullback?