We finished 2013 on a good note with the US markets pushing higher. 2014 has started by giving back some of those gains and the question once again becomes is this a pause, consolidation or the beginning of a correction?
I don’t have a crystal ball, but the one thing I do know is that the market usually reverts to its mean behaviors. That being said, the average intra-year decline since 1980 is -14.7%. Last year the largest intra-year decline was -6%. As the chart below shows, it should not surprise anyone to see the market have pullbacks in 2014 and most likely greater than -6%.
A pullback of this level would do a lot to make the US markets more attractively valued than they are currently. If a patient investor expects these pullbacks, hopefully it will be easier for them to stay the course when they occur.