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Is there more to the current market correction?

market correction

Will the Dow be up or down 500 points tomorrow? What about the TSX?

These days, no one seems to know how to maneuver these choppy markets.

Paradigm Capital analyst Aazan Habib says as it stands right now, it’s probably the right thing to do to be defensive, but says there is no reason to panic.

“Risk assets appear to be facing a seasonal correction, amplified by a growth scare. Sector/factor rotation trends favor taking a defensive posture over the coming weeks. To suggest that this is becoming something more sinister, we would need to see: 1) further deterioration in global breadth; 2) a clear risk-off signal from credit spreads; 3) deterioration in Financials and Homebuilders; and 4) US Dollar strength/emerging market currency weakness,” he wrote in a September 8 research report to clients.

So what about the impact of rate cuts that are expected to continue? Habib weighed in on the matter.

“With the Fed expected to cut rates next week and the US 10s/2s yield curve un-inverting, the question is whether these events are positive or negative for equities. Our backtests suggest that rate cuts in isolation are a net positive for equities (expected value looking out 26 weeks from the event is +17.5%) while a yield curve un-inversion is more of a neutral event (expected value looking out 26 weeks from the event is +4.3%),” he added.

About The Author /

Cantech Letter founder and editor Nick Waddell has lived in five Canadian provinces and is proud of his country's often overlooked contributions to the world of science and technology. Waddell takes a regular shift on the Canadian media circuit, making appearances on CTV, CBC and BNN, and contributing to publications such as Canadian Business and Business Insider.
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