To understand the depth of the market correction is to understand the question. Real market corrections come from 'apparently' real threats to the economic status-quo. So, I ask myself, is this social unrest systemic enough to pose a real threat to the current economic status-quo?
In my most-humbly-unqualified-opinion, no.
(When reading the below post, its my assumption to the true effects toward the market. That's it. Politically, I believe the people have a right to protest, and inspire policy changes that give them the same opportunity seen in Brazil, China, India, Russia and America. I am glad to see people organizing to obtain these opportunities if their current leaders do not give it to them.)
Through-out the last couple of months the world has seen, but has been ignoring, pretty hard core protests in Iran, Thailand, Greece, Tunisian, Yemen and Egypt (until Friday). Economically, the reason for the market's apathy is obvious, the combined GDP of these countries is $2.4 trillion dollars. So I was pretty surprised to see the headlines using Egypt to justify the market decline. (I can not complain about this because my Gold trade was exacerbated by the continuous headlines.)
Now lets be realistic about Egypt. (Ignoring the fact that 2.4trillion on a global economic perspective is not that significant. And when factoring that probably far less than 20% of that 2.4trillion economy was affected by their social unrest, makes this even less economically significant). What the chatter/research tells me about Egypt, and what it may mean:
1. It has a $500B GDP. (On a company's earnings front, it means very very little.)
2. The protest is mainly to obtain more economic opportunities by the average person. (This can be obtained by policy shifts, who ever creates the shift is irrelevant.)
3. The army appears to be on the side of the people. They are allowing the people to protest. (Peaceful protests maintain a social fabric.)
4. The army and their associated front companies, which apparently dominate the economy, have a large interest toward ensuring social stability. (This makes me think the army has it in their best interest to encourage the hand of policy shifts.)
Basically, I see policy changes coming with little economic impact.
If I am completely wrong, the worst case scenario chatter that I have seen is that Egypt will act as a catalyst to social revolution to the entire Middle East region. The worst case scenario is a bit much for me to swallow, as the scenario assumes current leaders will not be preemptive and adjust policies to satisfy requests of the people. (But international relations is not the point of this blog.)
The last real correction seen was in May, with the 'apparent' threat of European debt. That correction lasted for four months. The European debt issues had a very real potential systemic threat, meriting a lengthy decline. I can not say the same for this, at least not yet. So I do not think we get a pull back to the long-term trend line, the 360SMA.
I am still inclined to believe in the 're-assessing' post.
We are at support levels, valuations are very fair and suddenly the market is not as overbought as it was this past Thursday.