The profit taking began a couple of weeks ago after finishing up a spectacular 3rd quarter. But then it snowballed as trade tensions with China escalated. And then snowballed even more after bond yields spiked.
So let me reiterate what I said last week: the pullback was way overdone; while tensions are high with China, there's signs the impasse could soon be broken and lead to resumed trade negotiations; and the spike in bond yields had more to do with China selling $3 billion worth of bonds last week, and not because of recession fears, inflation, or worries the economy is slowing down.
Regarding profit taking, that's pretty much done and over with.
And the bond yield hysteria has likely already reached its fevered pitch now that China is done selling.
We still have a trade stand-off with China, but it's believed that both countries will talk trade at next month's G20 meeting. And there's hope that a friendlier tone will emerge prior to that. (BTW, if it does, the markets will likely shoot up in a big relief rally.)
With the first half of October behind us, let's take a quick look at the reasons why the second half is likely to be much, much better.
1) Earnings season is now underway, and for the last 9½ years, the market's gone up on average of 1.5% during earnings season. And if the previous earnings season was up (which it was), there's a 73% chance the next earnings season will be up too.
2) October, historically speaking, is the best month for stocks. (It's also notorious for being the most volatile, as we've already seen.) But also the most profitable.
3) And October, November, and December are the three best months in a row for the market.
So there's a lot to look forward to.
And after last week's correction, there are plenty of great stocks on sale at prices you only wished you could have gotten in at before.
Let the brand new trading week begin.