Dow Negative for the Year After 300+ Point Drop
With the Dow negative now for the year and the S&P a bare 0.05% above break-even, we can always look to the NASDAQ for happy news to end July. After all, it's been the star this year, with the great rise in tech and..oh, that's right, tech's been woozy and...well, it looks like the superstar for 2014 is - hard to believe - 0.057%, barely above the S&P. So where did it all go?
Alas, we don't have an answer to "What happened?," but we do know that there's somewhat of a pattern developing here that reminds us of 2007, when stocks headed higher and higher, eventually setting an all-time record, only to have that record be the ultimate top before - well, as you may guess, the bloody fall of 2008. But, hey, if today really is like 2007, remember it took a year or so before the you-know-what really, truly, finally hit the fan in 2008.
Whatever you believe is really happening now, next on the agenda, assuming there's not another leg down to this drop, will be the bulls urging "buying on the dips," based, of course, on strong - in some cases record - corporate earnings. On the other hand, we may want to be prepared for a deflation scare coming around the bend. Gold dropped more than 10 points yesterday, not as dramatic a drop as stocks, but continuing a move lower after some rallying in previous weeks. When gold drops along with stocks, can whispers of "deflation" be far behind?
Notice I've said that it would be a deflation "scare." The scare may not last long; we've seen these before. And given the open talk of deflation in Europe, a spill-over across the Atlantic - or at least the concern that deflation might spread - is perfectly natural. On the other hand, if we do settle into a period of deflation that lasts beyond an initial scare, we will surely see the Fed reverse what it just announced today: a continued curtailing of its bond buying program, based on strong economic fundamentals, the latest expression of which would be the "annualized 4%" rise in GDP along with reasonably not-weak employment numbers (not actually strong, but simply not really weak). Funny how the Fed's comments about things looking up arrived moments before the biggest stock market drop of the year, isn't it?
So who to believe and what to do?
Believe no one. Open your eyes and look around. What do you see? Is the economy getting hot in your neck of the woods. Okay, if you're in Silicon Valley, San Francisco, or Manhattan, or one of those fracking-for-natural-gas parts of the country, you don't get to weigh in. I'm talking about the rest of you out there. Does "hot" or "getting hotter" describe the economic activity you see in your neck of the woods?
As for stocks, technical damage, as they say, has resulted from today's move. But it takes more than one day to set a trend, and we're not yet at a point where anything definitive can be said about today's drop. But don't ignore the signs - if indeed this is a sign of a change in direction from bull to, well, at least tired bull, if not looming b---...(Wait, let's all be cool and not use the "bear" word yet, OK?)
Alas, we don't have an answer to "What happened?," but we do know that there's somewhat of a pattern developing here that reminds us of 2007, when stocks headed higher and higher, eventually setting an all-time record, only to have that record be the ultimate top before - well, as you may guess, the bloody fall of 2008. But, hey, if today really is like 2007, remember it took a year or so before the you-know-what really, truly, finally hit the fan in 2008.
Whatever you believe is really happening now, next on the agenda, assuming there's not another leg down to this drop, will be the bulls urging "buying on the dips," based, of course, on strong - in some cases record - corporate earnings. On the other hand, we may want to be prepared for a deflation scare coming around the bend. Gold dropped more than 10 points yesterday, not as dramatic a drop as stocks, but continuing a move lower after some rallying in previous weeks. When gold drops along with stocks, can whispers of "deflation" be far behind?
Notice I've said that it would be a deflation "scare." The scare may not last long; we've seen these before. And given the open talk of deflation in Europe, a spill-over across the Atlantic - or at least the concern that deflation might spread - is perfectly natural. On the other hand, if we do settle into a period of deflation that lasts beyond an initial scare, we will surely see the Fed reverse what it just announced today: a continued curtailing of its bond buying program, based on strong economic fundamentals, the latest expression of which would be the "annualized 4%" rise in GDP along with reasonably not-weak employment numbers (not actually strong, but simply not really weak). Funny how the Fed's comments about things looking up arrived moments before the biggest stock market drop of the year, isn't it?
So who to believe and what to do?
Believe no one. Open your eyes and look around. What do you see? Is the economy getting hot in your neck of the woods. Okay, if you're in Silicon Valley, San Francisco, or Manhattan, or one of those fracking-for-natural-gas parts of the country, you don't get to weigh in. I'm talking about the rest of you out there. Does "hot" or "getting hotter" describe the economic activity you see in your neck of the woods?
As for stocks, technical damage, as they say, has resulted from today's move. But it takes more than one day to set a trend, and we're not yet at a point where anything definitive can be said about today's drop. But don't ignore the signs - if indeed this is a sign of a change in direction from bull to, well, at least tired bull, if not looming b---...(Wait, let's all be cool and not use the "bear" word yet, OK?)
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