The correction is on. Here's how bad it's going to get.
Thursday wasn't just bad for the markets, it stunk.
While the Nasdaq composite index saw its worst loss since 2011, the market benchmark S&P 500 index lost 2 percent and is now negative for the year. Only 21 stocks in the S&P 500 were either positive or flat Thursday and the index ended the day at 1,833.08.
And, it may get worse before it gets better.
Chad Morganlander, portfolio manager at Stifel's Washington Crossing Advisor, sees the potential for a 5 to 7 percent correction in the S&P 500 over the coming months. That could come as the Federal Reserve continues to taper its monetary stimulus program. During that time, according to Morganlander, investors will flee to more defensive, quality names.
However, the year may end on a positive note, Morganlander believes.
"We think in 2014, a 6 to 8 percent total return on the S&P 500 could in fact happen," he said. "That would be on the back of around 3 percent GDP growth [and] earnings growth of 6.5 percent, which would get your S&P earnings to $115."
Though Morganlander also sees somewhat higher revenues ahead for companies, stocks will also be pushed up with continued share buybacks.
"You have revenue growth of around 3 percent," predicted Morganlander. "Perhaps you have buybacks of 2 percent of the total amount of shares. And, overall total amount of return is around 6 to 7 to 8 percent on the market."
Ari Wald, head of technical analysis at Oppenheimer & Co., agrees with Morganlander that a correction could be ahead, though he sees it in a range between 6 and 8 percent. And, like Morganlander, he also thinks the market will close the year on the upside.
"For the S&P 500, I'm still remaining positive," said Wald. "I think we do get that 6 to 8 percent correction. We're due for one. Summertime is when you would expect it."
Wald thinks investors should pay attention to the fact that the S&P 500 still trades above its 200-day moving average.
"Sometimes, it's just as easy to follow the trend and follow the rising slope of the S&P 500's 200-day moving average," said Wald. "The tactical opportunities are on the downside, to buy dips rather than to sell rallies."
The important level to watch, according to Wald, is one the S&P 500 just broke below: 1,840.
"If you can't hold that," said Wald, "maybe that correction comes a little bit sooner rather than later."
"If you can't hold that," said Wald, "maybe that correction comes a little bit sooner rather than later."
To see the full discussion on the S&P 500, with Morganlander on the fundamentals and Wald on the technicals, watch the video above.
http://finance.yahoo.com/blogs/talking-numbers/the-correction-is-on--here-s-how-bad-it-s-going-to-get-212313355.html
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