Is This the Beginning of the End?

This could be the start of the long-awaited correction. Or worse. Or, maybe not.

The stock market hit a small air pocket today. The S&P 500 finally suffered a “significant” drop, if you can call it that, as investors continued to worry about the flattening yield curve and the uncertainty over tax reform, and all its implications.

The Dow Jones Industrial Average dropped 138.19 points, or 0.6%, to 23,271.28 today, while the Nasdaq Composite fell 0.5% to 6,706.21. The S&P 500 dropped 0.6% to 2564.62. That was its first drop of more than 0.5% in 50 trading days, the longest such streak since 1965.

It’s no wonder that my email, Twitter, and phone lines lit up today. It was such a small decline in the market, and yet it has unsettled investors as if it were a much bigger one. And who can blame them?

By now, almost everybody knows that the stock market is over-valued. It’s priced for perfection, assuming that tax reform is coming, infrastructure spending is coming, coal mining jobs are coming back, and high paying factory jobs are coming back.

All of these things are already factored in to the prices we are seeing in the market today. Investors are worried about a stumble, and I am too. But here’s the important thing for all of us to keep in mind: just because the market is expensive doesn’t mean there’s a crash coming.

I have been advising clients for more than a year that a correction, or worse, is coming. But nobody knows when. It makes little sense to me, to exit the market based solely on a feeling of anxiety or an imagining of “what if.” This little dip in the market is no different than all the other dips we’ve seen in the recent past.

So my advice is to keep an eye on things, but don’t do anything right now. If the market gets to minus 5% from its most recent high, my level of concern will go up. Until that happens, it’s steady as she goes.

Subscribers to my monthly newsletter will get an email from me when I am convinced that the time is right to start selling. If you want to relax and let me worry about the market instead of you, consider signing up.

 

 

About the Author

Former head of equity trading, Northern Trust Bank, Chicago. Teacher, trainer, mentor, market historian, and perpetual student of all things related to the stock market and excellence in investing.

Leave a Reply 1 comment

Howard Randall Reply

Excellent reply but add one more item…if rates stay low or climb slowly AND earnings keep rising. The market will keep rising.

I say it over and over to myself every day “It’s earnings and interest rates” forget all the other noise.

Leave a Reply: