Timing US market turnaround a chancy proposition

Measuring the point at which investors have exhausted their selling in a market downturn is an inexact science at best, and at its worst akin to sticking a finger in the air to judge shifting winds.

By some measures, the near 10 per cent decline in the Standard & Poor's 500 stock index from a record high last month may already have flushed out much of the speculative money that helped propel a bull market in stocks beyond the average length.

Investors look for a number of signs to determine whether a correction has run its course. The reduction in big bets on the US dollar and equities, the rebound of small-cap stocks, the rise in volatility and heavy activity in futures trading as the S&P plunged on Wednesday all stand as potential signs the selling is reaching a crescendo.

For months, worries about the European economy and the conflicts in the Middle East and between Russia and Ukraine did not shake the bullish conviction as the S&P 500 surged to a record closing high of 2,011.36 on September 18. But with the US Federal Reserve looking more serious about reducing stimulus and uncertainty surrounding the Ebola outbreak, the market finally succumbed to a bout of panic.

"One possibility is we're seeing risk reduction not for economic or any kind of structural reasons, but maybe fear of Ebola," said Jack Ablin, chief investment officer at BMO Private Bank in Chicago.

"If that's the case and things are transitory, headlines improve over time, perhaps we get back on track."

According to Whitefish, Montana-based InvesTech, since 1932 there has been on average a 10 per cent correction every 25.7 months. It has now been about three years since the last correction occurred in 2011. The S&P 500 has lost 7.4 per cent since its September 18 high.