Hardly a Market Correction... Yet

NEW YORK ( TheStreet) -- Unless you owned stocks in the precious metals mining sector, last week's market drop probably caused you some serious indigestion.

Yet the Dow Jones Industrial Average ended last week at 15,081.47, still ahead for the year by about 15%. That's not as good as the 19.5% gain for the DJIA reached on Aug. 2, but no one should be wringing their hands.... yet. Much will depend on what the Federal Reserve, and we should get some hints today when the Fed releases minutes from last month's Federal Open Market Committee meeting.

The S&P 500 index also had its biggest weekly decline since June, but the index is really down only just over 3% since it closed near the 1,710 level on Aug. 2.

Here's a five-year chart of the S&P 500 as measured by the SPDR S&P 500 ETF ( SPY). XSPY Chart XSPY data by YCharts

Going back to 2008 when the stock market fell off a cliff in the second half of the year, the period from July through November hasn't been good for the broader stock market indices.

Usually when the stock market is in correction mode, Treasuries move higher. Last week was different as the value of the 10-year Treasury plummeted, causing the yield to spike to a two-year high of almost 2.83%.

The higher interest rates on the 10-year Treasury affects mortgage rates since the note is the benchmark for mortgages. Mortgage rates are climbing, which is affecting mortgage applications. Wall Street is concerned that this will crimp the housing recovery.

Last Wednesday, the Mortgage Bankers Association reported that mortgage applications for the week ended Aug. 9 decreased nearly 5% from the previous week.

No wonder the homebuilding sector has faltered. Consider the shares of two homebuilding bellwethers - Toll Brothers ( TOL) and Lennar ( LEN). TOL Chart TOL data by YCharts

Lennar has plunged 24% since its 52-week high on May 20 of $44.40, and Toll Brothers has fallen about 20% from its 52-week high on May 22 at $39.24.

Some blame the stock market's malaise on "good news is bad news." For instance, new weekly unemployment claims were the lowest since 2007. That caused concern that the Fed will reduce its bond-buying program.

Give me a break! How about the millions who have stopped looking for jobs because the only ones readily available pay close to minimum wage, or how about the millions who are under-employed for the same reasons?

Quarterly earnings reports from many big companies and other economic data suggest that any economic recovery is at best puny. Inflation is a little higher but it is within the Fed's 2% target.

So what's an investor to conclude from all this? Don't panic, and if it makes you feel better, sell some winners, cut your losers or tighten your stop losses.

Remember if the stock market corrects another 7% from Friday's levels, it would still be up 8% for the year. Even a 10% correction would most likely be a great buying opportunity for investors waiting for a substantial market dip.

Questions abound about whether the Fed will decrease its bond buying may be partially answered when the Fed releases FOMC minutes, although the question remains about who the next Fed chairman will be and whether that person will change the Fed's policies.

What the Fed will do to carefully reduce its monthly massive bond purchases is a source of angst. Yet there are some comforting cluess.

Last Thursday, for instance, James Bullard, president of the Federal Reserve Bank of St. Louis, said he hasn't decided if the Fed should start to slow down its bond-buying efforts next month.

Bullard's comments were the first from an FOMC member to drop hints on the approach the Fed may take when it does begin to wind down its $85 billion-a-month bond-buying spree.

"A larger move would be interpreted as a faster pace reduction," Bullard said.

To that, I sarcastically commented, "No clue, Sherlock!" But his next comment was more encouraging: "A smaller move would be considered a more hedged bet, a slower rate of reduction in purchases."

Those are the key words that suggest the Fed will find a way to wind down its bond-buying program slowly in a measured way that's acceptable to investors. Fed Chairman Ben Bernanke did say in June that the Fed may begin to wind down the program later this year, but only if the economy recovers.

Bullard's sparse comments suggest that a compromise could be in the making in which the Fed tapers down the bond-buying program the same way an expert keeps a ticking bomb from detonating.... very slowly and carefully.

Bullard said in essence that the first move's size will send an important signal to the markets about how the Fed would proceed. Slowly and carefully makes more sense in case economic data aren't as positive as some have spun.

The markets hate uncertainty, and I'm fairly confident the Fed doesn't want to douse both the stock and housing markets by taking its foot off the bond-buying pedal too much, too fast.

Disclosure: At the time of publication, the author is long Toll Brothers.

This article was written by an independent contributor, separate from TheStreet's regular news coverage. .
Marc Courtenay is the founder and owner of Advanced Investor Technologies, LLC, as well as the publisher and editor of www.ChecktheMarkets.com.

Courtenay holds a Master's of Science degree in Psychology from California Polytechnic State University, and is a former senior vice-president of Investments for two major brokerage firms. He's been a fiercely independent investment "investigator" and a consulting contributor to the investment publishing world for over 30 years. In addition to his role as an investment publisher and analyst, he serves as a marketing consultant to the investment media industries.

In his role as a financial editor, he specializes in unique investment strategies, overlooked stock investments, energy and resource companies, precious metals, emerging growth companies, the prudent use of option strategies,real estate related opportunities,wealth preservation, money-saving offers, risk management, tax issues, as well as "the psychology of investing". Because of his training and background in Clinical Counseling and Psychology, he enjoys writing about investor behavior, the ¿herd mentality, how to turn investment mistakes into investment breakthroughs and the stock market's behavioral trends and patterns.

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