Opinion: Why The Stock Market Needed a Brutal Pullback

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Wall Street in New York City. Photo by Alex Proimos via Wikimedia Commons

By Mickey Welcher

The last few trading days have been brutal for the market. Where does this leave investors going forward?

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Stocks have been on a rocket ride straight up over the last year. Investors have loved how much their portfolios have increased, but they forget what can happen when selling starts. As much as we would like to see the markets go higher, it’s natural that investors will, at some point, take some of those profits off the table and sell.

Another reason the market is dropping is due to the quick rise in interest rates over the past week. There is a new worry that the Federal Reserve will raise rates four times this year instead of three, but no one knows for sure.

Don’t fret about all this. The truth is we needed this pullback, and I forecast that it will be short-lived. For starters, there’s a lot of money sitting on the sidelines waiting to buy quality stocks, but not at the prices we have seen over the past month or so. As the market drops, these shares become cheaper, and folks who are waiting for this opportunity will start buying. They won’t jump in all at once, but they will begin to dip in, which will help slow down the selling.

Mickey Welcher

Currently, the market is near the end of earnings season, which so far has been very good. The majority of companies have beaten analysts’ estimates, which led to the market move higher throughout January.

So this pullback is going to give investors a rare opportunity to buy some great companies that had phenomenal earnings at a lower price. The most active stocks before the drop will be the ones buyers get into: Boeing, Facebook and Amazon are just a few that come to mind.

Another reason this pullback should be short-lived is due to the underlying strength of the economy and low unemployment. These are good indicators of the intermediate future, which will help the market rebound from this drop. When the market crashed in 2000 and 2008, both of these signs had turned down.

Remember, the market does not go straight up without a pullback at some point. We could see more selling over the next few days, but buyers are on the sidelines, waiting to purchase quality stocks at a discount.

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Do not panic and sell because you are worried about losing all your profits. Investing is for the long term, and there are always small bumps in the road.


Mickey Welcher is founder of Envestim, a low-cost financial advisory firm for anyone looking to start or manage their portfolio. He can be reached at mickey@envestim.com.

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