Thought of the Week

1. THOUGHT FOR THE WEEK
An Explanation for Why We Haven’t Seen A Correction
SYNOPSIS
• Several market participants believe that a
correction in the equity market is imminent,
solely because we have not experienced one
in almost three years.
• One possible reason why a correction has
eluded the market could be that it has paid
to buy the dips in equities, and investors
that have supported the market by doing so
have profited nicely.
• If the strategy of buying into market dips
continues to work, we may not see a
correction for some time as long as the
economic data continue to point to slow
and steady growth.
BUYING DIPS HAS PAID WELL
The conclusion of last week’s Thought for the Week
showed that timing corrections in equity markets
is impossible. Furthermore, we showed that those
who believe that a correction is looming for the sole
reason that we have not seen one in almost three
years, has no historical basis.
What history does show us is that corrections occur
far less frequently during secular bull markets,
which are extended periods of rising equity prices.
Since we strongly believe that we are currently in
the first secular bull market since the 1990s, we
could see the potential for an extended period of
time before the next correction.
One more reason why a correction may not happen
for some time can be explained by examining the
chart below.
Global Financial Private Capital, is an SEC registered investment adviser principally located in Sarasota, Florida. Investment Advisory Services offered on a fee basis
through Global Financial Private Capital, LLC. Securities offered through GF Investment Services, LLC, Member FINRA/SIPC.
2080 Ringling Boulevard, Sarasota, Florida 34237 • Tel: (866) 641-2186 • Fax: (941) 918-0405 • www.gf-pc.com • info@gf-pc.com

2. THOUGHT FOR THE WEEK
This chart shows the price action of the S&P 500
since the last official correction back in the second
quarter of 2012, and the red portions indicated
each market selloff greater than 3% since then. The
Investment Committee points to three important
observations:
1. Markets Dip Often: Investors were forced to endure
ten separate instances of the S&P 500 declining
more than 3% since mid-2012. However, each
of these dips was shallow and short-lived.
2. No Discernable Pattern: These dips were a result
of events that could not possibly be predicted
to any statistically significant level of accuracy.
For example, who would have guessed that the
Russia and Ukraine would have ended up in their
current situation, let alone that impact to U.S.
equities?
3. The Trend Is Up: Despite several dips in the
market, the overall trend in the S&P 500 has
been moving in a very profitable direction.
The real question that several market pundits have
attempted to answer is why these dips have yet
to ignite a real correction and leave investors with
deeper losses. Simply put, what has been supporting
the market?
The Investment Committee believes that both short-term
traders and long-term investors are the source
of this support because each has been incentivized
to buy when the market dips:
• Short-Term Traders: The Fed’s Quantitative Easing
(QE) program designed to keep interest rates
artificially low has forced everyone into riskier
assets in order to generate income. Many traders
believe that the strong performance in equities
will persist as long as the Fed is involved.
Therefore, any dip should be bought since the
Fed is the true support for the market.
• Long-Term Investors: Global Financial is not alone
in our belief that we are in a secular bull market.
Other large money managers are likely using the
fear and panic of others in the same manner as
us - buying dips to build positions.
Although the motives for buying may be different for
traders and investors, the one commonality between
the two is that it has paid to buy the dips.
Those who have bought the dips in equities over the
last two years have profited quite handsomely, and
as a result, the Investment Committee believes that
one of the reasons that the market has not corrected
is because there are so many buyers waiting for a dip
because they continue to profit from this strategy.
The bottom line is that buying dips resembles
“Pavlovian conditioning.” Just as a dog is
conditioned to expect a treat after performing a trick,
investors have learned that buying dips has resulted
in profits ten out of the last ten times when the
market has sold off more than three percent.
The Investment Committee welcomes a correction
with open arms, but we are also not holding our
breath and waiting for one to arrive. Given the fact
that we are in a secular bull market and buying dips
Global Financial Private Capital, is an SEC registered investment adviser principally located in Sarasota, Florida. Investment Advisory Services offered on a fee basis
through Global Financial Private Capital, LLC. Securities offered through GF Investment Services, LLC, Member FINRA/SIPC.
2080 Ringling Boulevard, Sarasota, Florida 34237 • Tel: (866) 641-2186 • Fax: (941) 918-0405 • www.gf-pc.com • info@gf-pc.com

3. THOUGHT FOR THE WEEK
has paid well, we may not see a correction for some
time. Furthermore, the overall market appears to
be fairly valued, which makes the prospects of an
impeding correction even less conceivable.
Sincerely,
Mike Sorrentino, CFA
Chief Strategist, Aviance Capital Management
This commentary is not intended as investment advice or an investment recommendation. It is solely the
opinion of our investment managers at the time of writing. Nothing in the commentary should be construed as a
solicitation to buy or sell securities. Past performance is no indication of future performance. Liquid securities,
such as those held within DIAS portfolios, can fall in value. Global Financial Private Capital is an SEC Registered
Investment Adviser.
Global Financial Private Capital, is an SEC registered investment adviser principally located in Sarasota, Florida. Investment Advisory Services offered on a fee basis
through Global Financial Private Capital, LLC. Securities offered through GF Investment Services, LLC, Member FINRA/SIPC.
2080 Ringling Boulevard, Sarasota, Florida 34237 • Tel: (866) 641-2186 • Fax: (941) 918-0405 • www.gf-pc.com • info@gf-pc.com