We can't see what's around the corner for stocks, but when we hear that valuations are high, markets are volatile and the economy on a knife edge, we prepare for losses – and a possible correction.
Equity markets in the US and Europe have been steadily marching higher since February 2009, which on the FTSE 100 in London, marked its financial crisis low point.
Over time, equity markets move higher. They suffer periods of losses, but in the long term, they move higher.
Bear market vs correction
Large reversals – of more than 20% measured from the most recent peak – we call "bear markets".
These happen infrequently – the last bear market was during the 2008 financial crisis. The one before that was the 2000 bursting of the dotcom bubble.
Smaller reversals – of more than 10% but less than 20% – are "corrections", so called because they are seen as more of a market "reset".
They are marked by more targeted bursts of profit taking rather than secular, wholesale sell-offs.
Corrections tend to last a few weeks or months, whereas bear markets can last years. The dotcom bubble bear market started in January 2000 and lasted until January 2003.
Corrections happen much more frequently. On the FTSE 100, four since the end of the financial crisis: in 2010, 2011, 2012 and 2015. On the S&P 500 in the US, also four: in 2010, 2011, 2014 and 2015.
"Equity markets are volatile, and while deep bear markets are relatively infrequent, corrections are a regular feature," says David Jane, fund manager at Miton.
Given the frequency noted above, it would seem equity markets are due a correction.
"Clearly, equity valuations are high, and in certain areas, extremely high, particularly for internet companies," says Jane.
But, he adds, valuation is not a good indicator of future market returns in the short term, and it would likely take disappointing news on the economy to cause profit expectations to wither.
Reading the signs
So, what are the important signals to look out for in the coming weeks?