Is the Stock Market Correction Over?

The stock market has been on a rollercoaster ride in recent months, with fears of a U.S. recession sparking a selloff that has left many investors wondering if the correction is over. To answer this question, we turn to a flawless forecasting tool with over 150 years of data, which provides valuable insights into market corrections and their potential duration.

First, let's look at the economic fundamentals. Despite recession fears, the U.S. economy shows no signs of a downturn. Job gains have slowed since 2022 but remain above the long-term level we expect given an aging workforce. Earnings expectations for this year are also strong, with a 12% growth rate for the U.S. equity market. This suggests that the economy is still holding up okay, which is a positive sign for the stock market.

Next, let's consider the tech sector, which has been a major driver of the market. The 'magnificent seven' forward price-earnings ratio is around the same level as it was during the time of ChatGPT’s rollout. This suggests that tech stocks are still valued attractively, despite recent volatility.

Policy uncertainty has also been a major driver of market volatility. However, over the six-to-12 month horizon, we expect some of those uncertainties to dissipate. This could be a positive for the stock market, as investors may become more confident in the economic outlook.

Finally, let's look at the market performance itself. Global stocks trimmed their losses last week, and the S&P 500 was down only 1% after briefly entering a technical correction. This suggests that the market has already corrected and is now stabilizing.

In conclusion, while there are still risks to the economic outlook, the data suggests that the stock market correction may be over. Investors should keep an eye on economic fundamentals, tech valuations, policy uncertainty, and market performance in the coming months. As always, it's important to stay informed and make investment decisions based on the latest data and analysis.