Midday Report: Signs of a Spring Correction for the Stock Market

DailyFinance Staff
Updated


Produced by Drew Trachtenberg

Is the stock market headed for another spring swoon?

It's happened in each of the past three years, and a growing number of market watchers say it's likely to happen again in 2013.

The warnings are piling up that market is due for a pullback, probably in the range of five to 10 percent.

Here's the recent history: last year the Dow fell 8.8 percent from its early spring high. In 2011, it dropped more than 7 percent, and in 2010 it slid nearly 13 percent from April 26th through the end of the second quarter.

But the Dow ended higher in each of those three years, including a 19 percent gain in 2010. This year, the Dow is coming off of a huge 11 percent gain in the first quarter.

So what are the warning signs we're seeing?

Let's start with the fact that the stock market has become front page news as it's soared to record highs, which has prompted mom-and-pop investors like you and me to jump back into the market.

NEW YORK, NY - APRIL 02: Traders work on the floor of the New York Stock Exchange at the end of the trading day on April 2, 2013 in New York City. The Dow Jones Industrial average and the S&P 500 rose to new record highs on April 2, with the Dow finishing at a record close of 14,662. All three major indexes are up between about 10 percent and 12 precent for the year. (Photo by Spencer Platt/Getty Images)
Spencer Platt, Getty Images



A lot of pros think that's a bad sign, at least in the near term. We're considered a contrary indicator. In general, we tend to buy after the market has already jumped, because we don't want to miss out on the rally. The problem is, the typical investor has terrible timing.

There are a number of other concerns as well.

For technical investors, there's worry that the Dow Transportation Index has been selling off in recent days. Many pros consider it to be a leading indicator that's now flashing a warning sign.

There's also concern that the upcoming earnings season will be even more sluggish than expected. Thomson Reuters expects earnings growth of just 1.5 percent, and companies that disappoint could get punished.

And the wild card for the market is the increasingly bellicose rhetoric coming from North Korea. Any real hostilities could take a toll on markets around the world.

Now all of this comes with a big grain of salt: Most forecasters still expect the market to end the year with solid gains.

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