Is it a correction, or something else?
On January 26, 2018, the Dow hit 26,616.71. Since then, there have been multiple 500 point or more drops in the Dow. Since a “correction” is defined as a 10% or more drop in the stock market, and the Dow was 23,860.46 on February 8, 2018, the stock market officially has met the correction criteria (loss of 10.4% on that date). What should we expect to occur next?
Continued volatility should be expected, as multiple analysts have concluded we have barely tested the market bottom, and these conditions usually play out over the course of weeks or months, not days. Additionally, several events will play out over the next six weeks which should either calm the markets, or add fuel to the fire. The first of those would be the CPI – Consumer Price Index (inflation) numbers reported on Wednesday, February 14th, at 8:30am. Next, would be February 28th, the first time new Fed Chair Jerome Powell will testify before Congress. The third event would be the March quarterly reports of major stocks, which will be the first indication of how the new tax reform act affects quarterly profits.
Will the bull market continue it long running rampage, or will the bears come out to fight? My guess is that we are in for a long downward slide, with many ups and downs over the next several months. It will be a bumpy ride, and the worst of it is not yet over. Consider how the market has reacted to the recent revelation that wages are increasing higher than expected. What if other positive verification that inflation has reared its ugly head are also found in the data? This will lead to continued increased in interest rates, which (typically) have led to recession. If you take nothing else from this week’s blog, remember this: we live in “interesting times” and recessions are very bad for the stock market.