The stock market continues to behave in an orderly way. Following the recent -6% peak to trough correction on the S&P 500 Index (SPY), it appears the worst of the pullback may be behind us for now following a sharp upside reversal late last week that has characterized so many bounces in the post crisis period. But just because the market looks like it is once again on the mend does not mean that all is well. Investors were notably rattled during what was otherwise a mild correction over the last few weeks for good reason, as significant structural imbalances continue to fester underneath the global economic surface. And the latest warning shot across the market bow has provided important lessons for what we should expect and how we might position if and when these mounting pressures finally boil over into crisis.
It promises to be an interesting year for the markets as we move through 2014. We are no longer in a phase where one can simply enjoy the ride higher in stocks, as volatility is likely to play a greater role in markets as the year progresses. Thus, investors will need to stay on guard for potential action if necessary in the event that what was once a warning shot finally evolves into a full blown engagement.