What Concerns Me About This Stock Market Decline
As an investor, it is important to be able to interpret what you are seeing when it comes to market loss. Obviously, market gain doesn't need a whole lot of interpretation outside of the gain and its relationship to your goals.
Losses, need interpretation. There are two different types of market declines. First, there is the correction. A correction is a decline where the stock market drops at least -10% and no more than -20%. The second type of decline is a bear market. A bear market is a sustained loss over -20%. Corrections you can ride out. Bear markets are a totally different animal (no pun intended).
So, the million dollar question is this a correction or is this the beginning of a bear market?
Given the environment, prior to last Friday, it would not surprise me if this were a simple correction and that we return to the late stages of a bull market. However, there are some signs that concern me.
1) The Wild Swings
A correction no doubt can have wild swings going from loss to gain. However, this particular decline is much more exaggerated. Daily the Dow Jones is swinging within a 1000 point range. That is not normal without......
The unexpected news for the market creates decline. Dramatic news such as political upheaval, war, major earning declines, or bad economic news are included in a large list of news item surprises that can cause the market to decline. NOTHING NEWS WORTHY IS MOVING THIS MARKET. So, why the major swings and quick initial losses? Typically, that is not left up to speculation. However, that is truly all we have is speculation.
Some will say inflation and higher interest rates. However, that possibility is not new news to the market.
It is unusual for a market to drop 666 points on Friday and over 1000 on Monday without news. As I write the Dow is off 133 points with no news driving it.
3) Speed of move
Typically, corrections don't lose so much so fast. This one is an exception to the rule.
So what happens when the real news comes out? As an investor, you better hope it is not extreme news. Extreme negative news that hits an out of balance market could cause a crash scenario.