Stock Market Correction Likely

During the past few weeks the stock markets have been exhibiting signs that a stock market correction is overdue. Combine this with the fact that August and September are historically the worst two months of the year. 

What makes a correction ripe at this time is a convergence of the following factors. First, I believe that interest rates will increase in the United States by the end of October. If nothing else it will spook the markets. Secondly, and more particular to Canada, the falling prices in commodities is not only hurting the energy sector, but has trickled down to the financial and industrial sectors especially. We have seen considerable pull backs in capital expenditures within the oil patch and widespread layoffs. According to some economists we are now in a recession, not surprising given the energy sector crash. 

My biggest concern is the effect that rising interest rates (in Canada) will have on the economy as a whole but on real estate in particular. I do not see rates rising in 
Canada this year given that it appears we are in a recession but it will happen at some point and when they start rising those with large debts especially highly financed principle residences will have to rein in their spending and lifestyle habits. The “perfect” storm could occur if we see rising mortgage rates and decreasing real estate values coming together simultaneously . 

At the end of the day, our client portfolios are poised to take advantage of soft stock market conditions by observing the principals I have been recommending for over 15 years. Down markets are great creators of wealth with the reinvestment of dividends, additional contributions and patience. 

As Warren Buffet says…"whether its socks or stocks everyone loves to buy things on sale.” 

Disclaimer:  The comments expressed here are the opinions of the Advisor and may not represent the views of IPC Securities Corporation.