Was Last Week's Stock Market Really a "Correction"?
Was last week's stock market tumble as bad as all that? Initial reports did exude an ominous tone, especially after the prior turmoil resulting from China's currency devaluation. In addition the "C" word popped up after Friday's big drop. But was last week's action really a full-fledged correction? Before we consider this, let's put these initial reports into some context.
The media, of course, loves turbulence. It wakes up their viewers and listeners from their usual somnambulant state of consciousness. They can then swoops down to capture the newly-awakened masses and feed their now-active imaginations with all sorts of stories in an effort to keep them attentive for as long as possible - knowing they'll soon slip back into semi-consciousness with the first signs of relief from the stresses of the moment.
And so we'll likely find that this first wave of market kerfuffle will subside - at least in the near-term - shortly after the usual and expected bounce back, likely to come this week. As to whether these events portend an advancing hurricane or simply a stiff wind on an otherwise calm sea remains to be seen.
Of course, "experts" like Savita Subramanian of Bank of America and Jonathan Golub of RBC Capital Markets wasted no time assuring us that last week's fall was more the latter than the former, with the usual advice that it's likely a good time to "buy the dips":
Rather than take up out time contemplating the bold statement, let's just note that what we're seeing is what we see after every "surprising" (to some) downturn: stories about how it's nothing more than a healthy correction therefore, again, calling for us to get out there buy stocks. Since anyone working on Wall Street knows that stocks are the lifeblood of the industry, we should expect this particular article to end with this:
First, let's see if this is a full-fledged correction. Remember, the usual definition of "correction" specifies a 10% drop in price. Did we see this in the major averages?
Well, the venerable Dow indeed fits the bill. From it's all-time high of 18,312.29 on May 19th, it's low on Friday of 16,459.75 plunked it into so-called "correction" territory down 10.1%. The other major averages, however, aren't quite there yet:
Meanwhile, the 30-year bond, from it's lows in June, looks to be heading back towards the highs of March, when it began to correct its most recent upward surge that began in early 2014 - right about the time "everyone" said (and continues to say, for the most part) that buying or holding long treasuries would be the worst possible deployment of your hard-earned money imaginable. Right. Had you ignored the common wisdom of the day, your portfolio would have held the biggest winner of 2014. And had you weathered the correction of March through June, you'd be holding a worthy counterweight to stocks.
While we're at it, we might as well mention gold - typically the most hated of assets, at least by our central bankers who, even as they purchase bullion to bolster their weak and flabby balance sheets, continue to tell us that gold can no longer fulfill its historic role as money. Then again, if it did, what would we call the paper and digital concoctions of these same central bankers? But we digress.
Gold may be the most intriguing player in these recent stormy days. After plunging through support at 1160, signalling a further down leg in the now 4-year old correction of its historic 10 year bull market that began in 2001, it settled on Friday at - what's this? - 1160. Whether this proves too mighty a resistance for further advance or not, we'll surely find out as the week progresses.
So there we have a fair assessment of where things stand on this Monday morning of the week after the you-know-what supposedly hit the fan. So do we dismiss this action as a stumble in the triumphant march toward stock market heaven that began in 2009? Some will claim this, especially if we get the expected bounce this week, more certainly if it extends to the week before Labor Day. Just keep in mind that previous bouts of a more serious fall in the fall (usually October) also saw this kind of "mini-correction" in the weeks before Labor Day.
MONDAY MORNING UPDATE: Despite efforts by their government, China's stock market continues crashing. U.S. futures are down big time. We await today's market closing prices to try and determine what comes next.
The media, of course, loves turbulence. It wakes up their viewers and listeners from their usual somnambulant state of consciousness. They can then swoops down to capture the newly-awakened masses and feed their now-active imaginations with all sorts of stories in an effort to keep them attentive for as long as possible - knowing they'll soon slip back into semi-consciousness with the first signs of relief from the stresses of the moment.
And so we'll likely find that this first wave of market kerfuffle will subside - at least in the near-term - shortly after the usual and expected bounce back, likely to come this week. As to whether these events portend an advancing hurricane or simply a stiff wind on an otherwise calm sea remains to be seen.
Of course, "experts" like Savita Subramanian of Bank of America and Jonathan Golub of RBC Capital Markets wasted no time assuring us that last week's fall was more the latter than the former, with the usual advice that it's likely a good time to "buy the dips":
...what torpedoed the market this week may be the same forces that pull it back up. While slowing global growth has investors worried, it’s also a reason for optimism about the biggest S&P 500 companies, with the U.S. economy outpacing its peers...It seems that while Europe and Asia - particularly the emerging markets - may be facing serious challenges, that's no reason investors in U.S. stocks need be concerned. Indeed, these folks explain troubled international markets bode well for the U.S. stock market.
...When Europe and China eclipse the U.S. we chug along, but when they’re in a down market, that’s when the U.S. really dominates...Did we understand this correctly: when the rest of the world's economies sink, that's good news for the U.S. economy? No worries?
Rather than take up out time contemplating the bold statement, let's just note that what we're seeing is what we see after every "surprising" (to some) downturn: stories about how it's nothing more than a healthy correction therefore, again, calling for us to get out there buy stocks. Since anyone working on Wall Street knows that stocks are the lifeblood of the industry, we should expect this particular article to end with this:
We’re getting to the point where the market is going to start looking for the fact that everyone is finished selling. I think that means we’re within days of a low.Now, while we're not quite ready to discount everything these industry mavens put forth (although we're close to that), let's first at least hold their remarks in abeyance with the knowledge that it's exactly what we'd expect and have always gotten from Wall Street experts in the face of stock market declines - no more, no less. But rather than simply criticize the media and pooh-pooh the wisdom of "the Street," let's simply focus on the facts as we know them to date.
First, let's see if this is a full-fledged correction. Remember, the usual definition of "correction" specifies a 10% drop in price. Did we see this in the major averages?
Well, the venerable Dow indeed fits the bill. From it's all-time high of 18,312.29 on May 19th, it's low on Friday of 16,459.75 plunked it into so-called "correction" territory down 10.1%. The other major averages, however, aren't quite there yet:
- The S&P's high of 2130.82 on May 21st and its low on Friday of 1970.89 yield a mere 7.5% fall.
- The more volatile NASDAQ Composite's high of 5218.86 on July 20th (no family connection there), a mere 31 days before its fall to 4706.04, yields 9.8% correction.
- Finally the NYSE Composite, the most broad-based of the major averages, fell from 11,239.66 on May 21st to its Friday low of 10,195.69, a 9.3% drop.
Meanwhile, the 30-year bond, from it's lows in June, looks to be heading back towards the highs of March, when it began to correct its most recent upward surge that began in early 2014 - right about the time "everyone" said (and continues to say, for the most part) that buying or holding long treasuries would be the worst possible deployment of your hard-earned money imaginable. Right. Had you ignored the common wisdom of the day, your portfolio would have held the biggest winner of 2014. And had you weathered the correction of March through June, you'd be holding a worthy counterweight to stocks.
While we're at it, we might as well mention gold - typically the most hated of assets, at least by our central bankers who, even as they purchase bullion to bolster their weak and flabby balance sheets, continue to tell us that gold can no longer fulfill its historic role as money. Then again, if it did, what would we call the paper and digital concoctions of these same central bankers? But we digress.
Gold may be the most intriguing player in these recent stormy days. After plunging through support at 1160, signalling a further down leg in the now 4-year old correction of its historic 10 year bull market that began in 2001, it settled on Friday at - what's this? - 1160. Whether this proves too mighty a resistance for further advance or not, we'll surely find out as the week progresses.
So there we have a fair assessment of where things stand on this Monday morning of the week after the you-know-what supposedly hit the fan. So do we dismiss this action as a stumble in the triumphant march toward stock market heaven that began in 2009? Some will claim this, especially if we get the expected bounce this week, more certainly if it extends to the week before Labor Day. Just keep in mind that previous bouts of a more serious fall in the fall (usually October) also saw this kind of "mini-correction" in the weeks before Labor Day.
MONDAY MORNING UPDATE: Despite efforts by their government, China's stock market continues crashing. U.S. futures are down big time. We await today's market closing prices to try and determine what comes next.
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