Citi: We're In A Correction, But Not A Global Bear Market

The sharp drop in stock prices around the world has many traders wondering whether this action is simply a bull market correction or the beginning of a bear market. In a new report, Citi analyst Robert Buckland remains bullish on global equity markets and believes this price action is simply a standard correction.

Market correction versus bear market
It’s important that traders understand the distinction between a correction and a bear market. A correction is typically a sharp, short-term drop in prices that is less than 20 percent and lasts less than two months. Bear markets, on the other hand, last much longer and can drag share prices much lower.
 

For stock traders, the major distinction between the two is that pullbacks offer excellent buying opportunities because they allow entry at lower price levels during a bull market. Bear markets are typically not good buying opportunities until the cycle is at or near its end.

Are we in a market correction or a bear market or neither?
With the MSCI AC World down 10 percent from its May peak, Buckland believes that the world is certainly in the middle of a market pullback. He notes that emerging markets have been hit hardest, down 18 percent from their highs.

However, Citi analysts see this weakness as strictly temporary and believe that the pullback has provided some excellent buying opportunities.

Remaining bullish
Citi analyst Tobias Levkovich believes that there is a high probability that the U.S. stocks will be higher in a year. “His sentiment indicators are not flashing panic yet, but current levels imply a better than 90% probability of gains in the next 12 months,” Buckland writes.