How Far Down Will the Stock Market Go Now?
The stock market is down over 200 points as I'm writing this. Is a big correction in process now?
First of all, it's always best to look at closing prices when making any kind of serious assessment of market activity. Today's 200 point drop could turn right around - even wind up as a gain. Stranger things have happened.
Second of all, it's important to consider percentages vs points when looking at a dramatic move. On a percentage basis, 200 points represents a fall of about 1.3% - not tiny, but not outrageous either.
Third, the recent overall trend, while down, has through yesterday's close, been only 2% down from the August 2nd high of 15,658.36. Again, this does not - so far - represent a serious correction.
The one thing that might be worth keeping your eye on is the fact that yesterday's close brought the Dow Jones Industrial average below its 50-day moving average, which may be significant. But, again, you have to wait a bit on this. Sometimes these moves above or below a moving average will turn right around in a day or two. Give this a week and see if the price remains below the 50-day moving average and we may have something to talk about.
One thing that has been striking, though, has been the continued fall in the price of the 10-year and 30-year treasuries. Yields have moved aggressively higher (hence the fall in price). So we now have both stocks and bonds dropping simultaneously. Yet, even here, the yield on the 10 and 30-year treasuries are at levels last seen in 2011, so these moves may prove to be nothing more than the normal ups and downs one expects from bonds, rather than a signal that yields will now shoot for the moon, as some keep insisting.
So, to sum up, right now there's simply no good reason to think that the stock market will plummet into a major correction (although it could happen) nor is there reason to think that bonds will also drop even more, simultaneously with the drop in stock prices. We just don't know.
And perhaps that's the final and most important point: we really don't know. So if you have a portfolio that's somewhat balanced and diversified, you probably just sit with what you have right now, with perhaps some speculation on the periphery.
First of all, it's always best to look at closing prices when making any kind of serious assessment of market activity. Today's 200 point drop could turn right around - even wind up as a gain. Stranger things have happened.
Second of all, it's important to consider percentages vs points when looking at a dramatic move. On a percentage basis, 200 points represents a fall of about 1.3% - not tiny, but not outrageous either.
Third, the recent overall trend, while down, has through yesterday's close, been only 2% down from the August 2nd high of 15,658.36. Again, this does not - so far - represent a serious correction.
The one thing that might be worth keeping your eye on is the fact that yesterday's close brought the Dow Jones Industrial average below its 50-day moving average, which may be significant. But, again, you have to wait a bit on this. Sometimes these moves above or below a moving average will turn right around in a day or two. Give this a week and see if the price remains below the 50-day moving average and we may have something to talk about.
One thing that has been striking, though, has been the continued fall in the price of the 10-year and 30-year treasuries. Yields have moved aggressively higher (hence the fall in price). So we now have both stocks and bonds dropping simultaneously. Yet, even here, the yield on the 10 and 30-year treasuries are at levels last seen in 2011, so these moves may prove to be nothing more than the normal ups and downs one expects from bonds, rather than a signal that yields will now shoot for the moon, as some keep insisting.
So, to sum up, right now there's simply no good reason to think that the stock market will plummet into a major correction (although it could happen) nor is there reason to think that bonds will also drop even more, simultaneously with the drop in stock prices. We just don't know.
And perhaps that's the final and most important point: we really don't know. So if you have a portfolio that's somewhat balanced and diversified, you probably just sit with what you have right now, with perhaps some speculation on the periphery.
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