You knew this was coming. Some kind of pause was long overdue. First, we have stretched valuations. Second, we have sentiment turning outright bullish. Third, we are entering the seasonally weakest time of the year (August-October). It wouldn’t take much to slow down the stock freight train, and the downgrade of the U.S. credit rating by Fitch was the initial trigger for last week’s slide, followed by the strong ADP report . So under these circumstances, what’s the summer correction worth? It depends on who you ask. “Using moving averages and retracement levels as guides, the S & P 500 could surrender a total of from 5% to 12% before resuming the bull-market advance,” Sam Stovall, chief investment strategist at CFRA, said in a note to clients. BTIG chief market technician Jonathan Krinsky is in that ballpark as well. “A test of 4,200 would be [roughly] 9% off the recent highs, which we think is reasonable even if this uptrend is set to continue later this year,” he said in a weekend note to clients. Right now, the S & P 500 is only 2.4% off its closing high on July 31. Not surprisingly, last week saw outflows in corporate bonds ( LQD ) and leveraged bets on the Nasdaq 100 ( TQQQ ). There were also notable outflows in gold ETFs ( GLD ). Gold topped out in May and gold ETFs have seen outflows since then. You’d think the stock market run would kill the big inflows into money market funds that happened in the first half of the year, but you’d be wrong. Money market inflows reaccelerated last week: $21 billion worth of inflows were added, according to Goldman Sachs. U.S. money market fund assets hit $6.7 trillion, the highest level in more than 13 years. It’s not all cautious news. There have been renewed inflows into energy, which is on a tear due to tighter oil supplies, and the equal-weight S & P 500 ( RSP ), all signs that the “broadening out” story is still alive.
