Rather than a sign of weakness, pullbacks are often the pauses that refresh the bull market. When the market has avoided pullbacks for an extended period, the bull market has tended to be shorter and result in a bear market when the decline eventually came. For example, the long bull markets of the 1980s and 1990s had dozens of 5 percent or more pullbacks with many of 10 percent or more, whereas the much shorter four-year 2003–2007 bull market did not have a single pullback of 10 percent or more and ended by erasing the entire bull market gain.
Therefore, pullbacks do not have to be viewed as wicked; instead we should cheer them, since they help to sustain the bull market and provide opportunities for investors to put money to work at a discount.
Jeffrey Kleintop is Chief Market Strategist and Executive Vice President at LPL Financial. In this role, he leads the development and articulation of LPL Financial Research’s market and investment strategies, leveraging his expertise in the analysis of global financial markets and asset allocation strategy.
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