Stocks in 'Manufactured Correction': CFRA's Stovall

In the ever-evolving world of stock market investing, it's crucial to stay ahead of the curve and understand the underlying factors driving market movements. Sam Stovall, the Chief Investment Strategist at CFRA, has recently shed light on what he terms a "manufactured correction" in the current stock market. This insightful analysis provides investors with a clearer picture of the market's dynamics and helps them make more informed decisions.



Stovall defines a "manufactured correction" as a decline driven not by fundamental economic factors but by technical indicators and market sentiment. He supports this claim with several key indicators:

1. Historical Market Performance: Stovall notes that the S&P 500 has always experienced a market decline in the calendar year following an annual gain of 20% or more. For instance, the S&P 500 rose just under 27% in 2021, which fits the pattern of a subsequent decline. He states, "The S&P 500 rose just under 27% in 2021. Further, all first-half slides were transformed later into a full recovery, returning the market to its starting point, he found. Plus, he added, the average drop from first-half selloffs was 10%, no more."

2. Fibonacci Retracement Levels (FRLs): Stovall uses FRLs, which are percentage declines based on the advance from an important low. He calculates that the S&P 500's recent low from the pandemic's outset on March 23, 2020, of 2,237, climbed to the Jan. 3, 2022, high of 4,797. Using FRLs, he predicts an impending decline to the 4,193 level for a peak-to-trough tumble of 12.6%, which would place it squarely in the correction camp. He writes, "That, in turn, 'would place it squarely in the correction camp,' he concluded."

3. Market Sentiment and Technical Indicators: Stovall also considers market sentiment and technical indicators, such as the price/earnings (P/E) ratio, to support his claim. He mentions that the market's P/E ratio needs to be trimmed to a more realistic level, indicating that the current market valuation is unsustainable. He states, "In the end, history says (but does not guarantee) that the S&P 500 will likely join the Nasdaq in correction territory before its P/E gets trimmed to a more realistic level."

By using these indicators, Stovall supports his claim that the current stock market decline is a "manufactured correction" driven by technical factors and market sentiment rather than fundamental economic issues.



Stovall's analysis provides a valuable perspective for investors navigating the current market environment. By understanding the factors driving the "manufactured correction," investors can better position their portfolios to weather the storm and capitalize on opportunities as they arise. Stovall's insights offer a roadmap for making smarter investment decisions in an ever-changing market landscape.

Ask Aime: Sam Stovall's "manufactured correction" prediction for the stock market