Friday, February 02, 2018

Financial markets wake up --- decline today

This was not a surprise.  It was an overdude due day, misspelling meant, am I loo loo loosing it,yeah mo mo money.  Days like this always jar investors because of their unpredictability and their precipitous nature.  In hindsight, this is minor and some would say necessary.  Hindsight... on October 19,1987 the Dow fell by 508 points, or 23%.  That was huge.  Today the market fell 665 points, or 2.5%.

The decline today did accelerate in the last hour.  Remember watching for those margin calls after 3pm in 2008 and 2009.  We just saw a touch of that.  Energy stocks, bank stocks, and mid-caps
 were hit hard for the most part. Small caps were mostly ignored. Among major technology stocks, Google and Apple were whacked while Netflix and Amazon rose. This is not simple.  High flyer Visa took a big step back and closely followed volatility king Freeport McMoran dropped 8%.  The questionable Sprint bet here was up 5%.  Vaunted BKB fell 3.75%, almost twice the Dow drop. Go figure.

This was a broad sell-off.  One earlier headline read, "Wall Street drops due to robust jobs data".  That's the "good news is bad news scenario" of potentially rising interests leading to inflation and a higher required rate of return for stocks. The so-called "elephant in the room" is a dysfunctional government.  Wall Street wants to ignore that and enjoy the tax cuts.  If there is a domino to fall on that issue it will be much larger and persistent, aka domino effect.  That is not expected yet.  "Yet" is opinion here but not acted on in any meaningful way yet.  How many times can that word be used in one paragraph.

More opinion ---  this was absolutely necessary.  A rising market is not guaranteed even in a stable economy.  Backtracking a bit more and setting a new base would be ideal.  For that to happen more fear is necessary, but please not too much.  No sleep disruption.  That's already taken care of.


Anonymous Anonymous said...

Since 2009 there have been 10 corrections ranging from -5.8% to -19.4%. The S&P is down now about 3.7% from its high on Jan.26. I think the usual definition for a correction is -5%, so we're not quite there yet. Whether it goes beyond that could hinge on the 10-yr Treasury yield, currently at about 2.85%, up from 2.06% in Sept. 2017. If goes much above 3.00, that could be a shock to the equity markets.
-John L.

12:38 PM  

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