The 4.3 percent decline suffered by the S&P 500 from its Dec. 29 record high through Tuesday's close is a necessary tonic to the steady gains of the last three years, says
CNNMoney correspondent Paul La Monica.
Indeed the market could use more of that medicine, he writes.
"We need a [10 percent] correction. Badly. They are healthy and occur often in normal bull markets, but we haven't had one for the S&P 500 since the summer of 2011."
To be sure on an intraday basis, the S&P 500 slid 10 percent during its September-October decline. "But the market wound up going on a ferocious Santa Claus rally in the last few weeks of 2014 to finish near their record highs."
La Monica offers several reasons why stocks may and should drop further.
- "The crude awakening," he writes. Oil prices have plunged 55 percent over the past six months to 5 ½-year lows. "Until oil prices stabilize, it makes sense for investors to be nervous about stocks," La Monica says.
- "The S&P 500 is trading at more than 16 times 2015 earnings forecasts." Birinyi Associates calculated the figure at 16.5 Friday. "That seems a little rich when you consider that earnings are expected to increase by less than 8 percent this year," La Monica writes.
"The good news is that if all these fear factors lead to a 10 percent drop in the market, that may scare off some of the speculators and make stocks more attractive again for long-term investors. There are already plenty of decent values among blue chip companies. Several stocks may have been unfairly punished."
Whatever correction arises, fear not, says
CNBC commentator Ron Insana. "I remain convinced that U.S. stocks are the place to be and that Wall Street is enjoying a secular, or long-term, bull market, based on a variety of positive influences," he writes in a commentary for CNBC.
And what are those influences? How about:
- Historically low interest rates
- Inexpensive energy
- A manufacturing renaissance
- Technological innovation
- Accelerating growth
- Decelerating deficits
- A confident consumer
"I believe the U.S. will weather the storm, and suffer, at worst, a correction. But that belief is also predicated on the Federal Reserve NOT raising rates in 2015, by Washington developing a policy response to OPEC's assault on U.S. fracking fields, . . . and by the U.S. consumer using a lower cost of living to spend more in the months ahead," he explains.