With the FTSE 100 still edging upwards (it is nearing 6,300 points as I type this), some commentators are talking about the likelihood of a market correction.
It would seem to make sense for investors to take short-term profits after a successful bull market run.
We often see this sort of investor behaviour, with the upwards trajectory of a stock market usually punctuated by spells of sharply falling values.
There is nothing wrong with short-term profit taking, if you are a professional investor.
For retail investors, the right approach is usually to remain invested for the long-term and view short-term profit taking events as mere bumps in the road.
Fidelity Global Special Situations fund manager Jeremy Podger, is quoted today saying that the strong performance in global stock markets seen to date this year will inevitably reverse.
Podger thinks a sharp market correction is coming soon due to the lack of positive underlying economic data to support the current equity rally.
We explained in a blog last week that the markets can often lead economic recovery.
For this reason, we don’t necessarily need to see strong underlying economic data to support an equity market bull run. It’s nice to have, but not essential.
That said, there remains threats to equity market progress and the risk of short-term profit taking is every present.
The next few weeks and months will be interesting for equity investors, although hopefully interesting for mostly the right reasons.
Photo credit: Flickr/Chiot’s Run
