This is Normal Market Behaviour

Concerns over inflation and rising interest rates may have sent stocks tumbling, but underneath it all, the US economy remains strong.

US jobs growth was up 200,000 thousand in January. That beat all expectations.

Many businesses are struggling to fill positions, which explains the rise in wages.

The US job market is in its best shape for a decade or more. Businesses continue to hire. The unemployment rate has dropped to 17 year lows of around 4%. Some analysts predict the jobless rate could reach 3.5%, which would be the lowest level in a half-century.

That strong and solid job growth is fuelling consumer confidence. US consumer spending grew at fastest pace since 2009.

And they’re making big purchases too, like houses. The strong demand for housing helped accelerate home construction last year to its fastest annual pace in a decade.

Housing starts in the US just hit a 10 year high. That’s unlikely to happen in a sputtering and faltering economy. It’s bullish for the US economy, very bullish.

US corporate earnings results are still coming in. Let’s look at some that already have.

Intel reported record revenue growth of $17 billion for the fourth quarter, and $63 billion for the year.

Amazon grew revenues 38% to $60 billion. Income came in at a record $1.9 billion, a company record.

Netflix is powering along, adding 8.3 million subscribers in the fourth quarter, the highest ever. The company also posted a bullish forward earnings guidance.

Google parent Alphabet’s revenues were up 24% on the prior year.

Facebook recorded fourth-quarter revenue of $13 billion, up 47%.

Apple posted its highest ever quarterly revenue, and biggest ever company profit.

And the Starbucks coffee chain reported record-breaking revenues.

Keep all this in mind, when you read all the financial headlines about an imminent market collapse. 

No cause for concern in the markets

These are the facts. US jobs growth is strong, the US consumer is confident, housing starts are setting records and so are the corporate earnings coming out. Some earnings are even better than good, they’re record results. That’s why stocks have been rising.

But the news is out now, and these stocks are fully priced. And when all the good news comes out, it is time to take some profits.

US stocks have gone on a near vertical run for the past year. That can’t go on forever. Stocks will correct and retrace to consolidate those prior gains.

You just can’t just keep on chasing stocks up forever. Stocks must retrace.

The market is just fully extended right now, and fully priced in.

Despite record profit results, there comes a point when you stop chasing stocks, no matter how good they are.

The major market benchmarks like the Dow and the S&P 500 have been up for well over seven years now.

And in those seven years they’ve had retracements along the way. This is normal market behaviour.

Whatever you read in the press, remind yourself what is the overall trend in the charts. Does it remain up? That’s what you need to know.

You’ll read a lot of sweeping statements now as markets correct, but markets are just fully extended right now.

Stock market corrections are completely normal. So just be wary when reading some analyst who suggests things are on the verge of collapse.

Now, you can use these times of panic in the market to identify which stocks are in the strongest positions.

At Money Morning Trader we’ve already identified a few. Go here to find out more .

Terence Duffy,
Editor, Money Morning Trader

Terence Duffy is an analyst and chartist, specialising in researching economic trends and cycles.  His primary focus is housing and land affordability. But you can also depend on him to offer his unique analysis of stock market charts. As Terence will show you, the charts often forecast, well in advance, the good or bad news to come.

Money Morning Australia