US stocks may finally undergo a correction - The week ahead on Wall St

THIS week may show whether US stocks are finally undergoing a long-awaited correction or if a recent run of losses are just a bump on the road to more gains.

It has been more than three years since the S&P 500 has dropped 10 per cent or more. This month, the benchmark index fell five sessions in a row, from 8 January through to 15 January, shedding more than three per cent in the process. Since 29 December, the index has fallen almost five per cent through to Thursday’s close.

What to make of the declines is less clear. The selloff has left shares more reasonably priced. The dollar also rose to an 11-year-high against the euro on Friday.

The greenback has gained steadily against a basket of major currencies for months, rising about 16 per cent as of the end of June.

Those gains are a double-edged sword. US exporters will now find their goods more expensive, and therefore harder to sell, abroad. A strengthened currency, though, helps fight inflation, which could encourage the US Federal Reserve to keep its accommodative stance a while longer to help boost economic growth.

Key earnings reports due this week include Dow Jones components Morgan Stanley, IBM, American Express and Johnson & Johnson. Wall Street expects overall earnings of S&P 500 companies to rise 3.5 per cent for the fourth quarter.

For some investors, the recent dip is a buying opportunity after stocks hit a series of record highs in the last year.