Legendary investor Peter Lynch once said: “You get recessions, you have stock market declines. If you don’t understand that’s going to happen, then you’re not ready, you won’t do well in the markets.”

No one bangs a gong to announce the start of a correction. The roller-coaster action of the stock market lately begs the question: is the long-awaited correction finally around the corner? Be forewarned, trying to time the ups and downs of the stock market is a sure way to lose your shirt.

Stocks took a dive Monday, due to the confluence of COVID Delta fears, wariness over the Federal Reserve’s intention to soon “taper,” end-of-summer profit-taking, and real estate woes in China.

Monday’s heavy losses were as follows: The Dow Jones Industrial Average -614.41 (-1.78%), the S&P 500 -75.26 (-1.70%), the NASDAQ -330.06 (-2.19%), and the Russell 2000 -54.67 (-2.44%). The CBOE Volatility Index (VIX) jumped more than 24%. Losses started in Asia and spread to Europe and the U.S.

However, after the opening bell on Tuesday, the Dow, S&P 500, NASDAQ, and Russell 2000 were all substantially higher in morning trading, with the Dow up more than 300 points. Most global indices were bouncing back as well, although Chinese equities remained under pressure.

Red ink in Red China…

Monday’s selloff was triggered by worries about the debt crisis with The Evergrande Group (OTC: EGRNF), China’s second-largest property developer by sales. The firm is struggling with $300 billion in debt and has been missing debt payments. Chances are, though, that the Chinese government will step in and prevent a collapse.

Regardless, there was more to the plunge Monday than Chinese real estate. After a solid run so far this year, stocks as a whole are pricey. Stock prices don’t move in linear fashion. Even the strongest bull markets are given to periodic selloffs. Many analysts are calling for a correction of 10%, but it would be foolhardy to try to time the day of reckoning.

Robust corporate earnings growth should keep the bull on its feet for the rest of the year.

According to FactSet, the estimated year-over-year earnings growth rate of the S&P 500 in the third quarter of 2021 is 27.6%. If 27.6% is the actual growth rate for Q3, it would represent the third-highest year-over-year earnings growth rate reported by the index since 2010.

On June 30, the estimated earnings growth rate for Q3 2021 was 24.2%. Six sectors have higher earnings growth rates today (compared to June 30) due to upward revisions to earnings estimates.

For Q3 2021, 47 S&P 500 companies have issued negative earnings guidance and 55 S&P 500 companies have issued positive earnings guidance.

Analysts also project year-over-year earnings growth of more than 20% for the fourth quarter of 2021. These above-average growth rates in part stem from an easier comparison to severely dampened earnings in 2020 at the trough of the pandemic-induced recession.

For Q2 2021, 87% of S&P 500 companies reported a positive earnings surprise and 87% of S&P 500 companies reported a positive revenue surprise. These are the highest percentages of S&P 500 companies reporting positive earnings and revenue surprises since FactSet began tracking this metric in 2008.

The estimated earnings growth for the S&P 500 for calendar year 2021 is 42.6% (see chart):

The forward 12-month price-to-earnings (P/E) ratio for the S&P 500 is 20.9. This P/E ratio is above the five-year average (18.2) and above the 10-year average (16.3). Considering strong projected earnings growth, the current forward P/E for the market isn’t seriously out of whack.

Seasonal selling…

Don’t get spooked by the market’s volatility. A large part of Monday’s selling, for example, was driven by seasonality. This is the time of year when investors typically start pruning their portfolios and pocketing the year’s gains. September and October are historically volatile months. The Chinese real estate mess was a catalyst for a needed breather.

Read This Story: Buckle-Up for a Roller-Coaster Autumn

The market has been choppy lately, illustrating the uncertainty of investors right now. They pile in with sell orders on down days and buy orders on up days. It’s fear and greed illustrated in real time.

Just make sure you aren’t governed by your emotions. When stocks pull-back this autumn, don’t panic. Corrections are healthy and an inevitable part of the investment game. Underlying conditions are ripe for further stock price appreciation. Buy on the dips.

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John Persinos is the editorial director of Investing Daily. Send your questions or comments to mailbag@investingdaily.com. To subscribe to John’s video channel, click here.