Is the correction of stock market is over or it is expected to fall further
The question of whether the correction of the stock market is over or is expected to fall further is one that has been asked by many investors in recent weeks and months. With the recent volatility in the markets, the question of whether the current correction is over or is likely to further decline has become a major focus for many investors. To answer this question, it is important to understand the current market conditions, the current economic environment, “Buffett Indicator” and Shiller-p-e-ratio which can be used as a guide to determine the potential upside or downside to the markets.
The recent correction in the stock market has been driven by a combination of factors, including a sharp decline in commodity prices, increased geopolitical uncertainty, and concerns about the health of the global economy. These factors have led to a sharp decline in stock prices and a significant increase in volatility. In addition, the recent surge in the U.S. dollar has led to a weakening of many developing market currencies, resulting in further losses for investors.
The current economic environment has also been a factor in the stock market correction. The U.S. economy has been struggling for several years now, with persistently low growth and a lack of job creation. This has resulted in a significant decline in consumer spending, which has put further downward pressure on the stock market. Additionally, the recent surge in the U.S. dollar has weakened the purchasing power of many developing countries, which has further dampened the prospects for global economic growth.
As a result of the current economic environment, many investors have become increasingly concerned about the future of the stock market and have begun to question whether the current correction is over or will continue to fall further. To answer this question, investors should consider the so–called “Buffett Indicator”. The Buffett indicator is a market indicator that is based on the ratio of total market capitalization to the gross domestic product (GDP). The indicator was developed by Warren Buffett, who is widely known as one of the most successful investors in history.
The Buffett indicator is considered to be a reliable measure of the overall health of the stock market. When the ratio of total market capitalization to GDP is high, it is generally seen as a sign of an overvalued market. Conversely, when the ratio is low, it is generally seen as a sign of an undervalued market.
As of December 31, 2022 the ration is calculated as:
Aggregate US Market Value: $41.2 Trillion
Annualized GDP: $25.9 Trillion
Buffett Indicator: $41.2 Trillion ÷ $25.9 Trillion = 159%
(Slightly above the long-term average)
However, it is important to keep in mind that the stock market is unpredictable and that no one can accurately predict when the correction will end. Therefore, investors should only invest in the stock market with a margin of safety. This means that investors should only invest in stocks when they believe that the stocks are trading at a price that is below the long–term average. This will ensure that investors are not taking on too much risk and are investing in stocks with a greater chance of success.
In conclusion, investors should still invest in stocks with a margin of safety i.e. bellow the stock’s intrinsic value, as no one can accurately predict when the correction will end. By following this strategy, investors can ensure that they are investing in stocks with a greater chance of success.
