A client asked me a series of questions that prompted the below reply. I looked at it and thought it was a good summary of where my head is at on a number of issues.
I have been thinking that we needed a 10% correction for some time (I use the S&P 500 average.)
There are few rebounds off a major bottom that don't correct by at least 10% within 14 months of the bottom. I believe we are in that correction now. We are 8.5% off the recent high (as of Wednesday's close) so that would imply we have some to go. I think we will/should try to make a temporary stand around 1100 as that is the 200 day moving average and is also just about 10% off the top. But I believe we will ultimately have a 12-14% total setback.
I would view that as a chance to buy.
We are in a strong dollar time period (even if only because the dollar is the best house in a bad neighborhood) and the sectors that usually do best in a strong dollar environment are groups like restaurants, retail, publishing, software, life insurance. There isn't much room to make money in the US 10-year bond but that would be an OK place to park money for a short period.
I do not believe we are in a new bear market. Corrections are normal and are always scary because they tend to be steep and terrifying. I believe the US economy is firming and while I have lower GDP forecasts than most, I am still positive and find stocks attractively priced. Especially when the low inflation and low interest rates are factored in. I do think we have to "fill in" the downside that was created in the "45 second" crash we had recently , so 1050-1070 is my target right now for the S&P. But as I said above, I hope we can wage a defensive effort at 1102 area.
I do not favor the Euro zone, as I think the risk of a weaker Euro is still present and even the potential for nations dropping out of the Euro. The prospects for a smoother, albeit modest, recovery in the US would make me prefer that area. At best I would have a modest exposure in the emerging markets as their export vitality will be crimped by a weak Europe, but there are far more knowledgeable people about that area than I.
I think the euro will trade at par with the US dollar in the next year or so.