Is this normal? Correct!

HELLO,

and welcome to the market correction of October 2018. It’s scary, it stings, it’s just no fun at all. Corrections never are. They are not supposed to be.

I’m calling it a correction because even though the indexes may not be off 20 percent, many high-flying stocks are.

Friday’s trading showed the wrestling between buyers and sellers for a general direction to the market.

The reasons can be found in the data.

The quarter ended Sept. 30, and coincidentally the breadth of the stock market (number of advancers vs. decliners) peaked Sept. 20.

Corporate buyback blackouts generally begin two weeks prior to the end of the quarter, and in many cases last until a firm reports. Almost all the major companies nowadays are doing buybacks, but they are shut out of the market for this time.

So buyback suspension is one reason for the market pullback.

Also, there are numerous natural sellers in the market prior to earnings reports — even more so when the market has been very good, as it has been for the third quarter.

Say you’ve owned Amazon or Netflix for the past three years. You’ve seen some wild gains, so it makes sense to trim a position or sell some stock, because in case it misses earnings you dodge the big drops.

Finally, not many institutional investors are buyers until they get a clear view of how companies will do on earnings. Most wait to see the results and forecast.

So you have sellers in the market and constrained buyers not in the market.

While everyone is pointing to interest rates as a factor in the market’s latest moves, if rates were the only thing affecting stocks they should have rebounded on Thursday when bond yields finally fell. Instead, the Dow sold off a full 545 points.

If you’re concerned about your 401(k), IRA or savings, don’t worry about corrections. We’ve had plenty of them before. And we will have plenty of them again — along with new highs.