This past week, markets corrected for the first time in approximately a half year, meaning investors in North America have seen their 2018 gains wiped out, on average.
This selloff has raised the question among many investors as to whether a full fledged bear market may be around the corner (we're already more than half way there), and if so, just how bad such a bear market might be this time around.
The overwhelming consensus among most experts and analysts at this point in time is that this correction was needed.
Valuations have become stretched, and the feeling among many in the investing community is that equity prices may have gotten ahead of expectations, given most of the positive news (tax reform in the U.S., increased government spending) is largely baked into the prices of companies today.
Just how overvalued companies turn out to be is the question on the minds of many; indeed, the run up in equity prices for many firms was warranted - cash flows are expected to continue to reflect strength coming from the aforementioned drivers and others.
That being said, headwinds on the horizon including political risk, rising interest rates, and overall global monetary policy contraction stand in the way of any meaningful valuation growth in the immediate future.
The jury may be out on just how far this correction will go, and while I have no idea as to the exact timing of a full fledged bull market, I would advise investors to adjust portfolio risk downward in the near term.
Invest wisely, my friends.
