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What Is Going On With The Stock Market?

By Staff

A pullback in the stock market has been predicted for some time, but even many of those expecting something in the way of a retreat are surprised to see how far and fast the equities markets have declined here recently. 

One Year Chart Of The Dow Jones Industrial Average


First of all, the market was due for a “correction,” which is a term that’s used to describe market declines that principally occur when it’s realized by the broad investor population that stock prices have far exceeded the actual, present-day values of many companies; in a simplistic sense, it’s easy to spot markets that are especially due for corrections – they’re the ones that rise steadily for several years in a row, without any noticeable dip along the way. Corrections occur, on average, about every 18 months, so when you have a market that has risen for years without one, you know it’s coming. When that happens, the decline that invariably occurs is typically bigger and more painful than the smaller ones that would have been easier to take, but which would have resulted in a lower market valuation, by comparison (note that corrections, by definition, are markets that decline at least 10 percent from their highs, but not more than 19 percent; once a market comes off of its high by 20 percent, that means it has become, officially, a bear market).

The all-time closing high for the Dow Jones Industrial Average (we’ll use that index because it’s the one most familiar to people) came earlier this year, on May 19: 18,312. As of Tuesday’s close, the Dow had sunk to 15,666, which means it has dropped a little over 2600 points since the all-time high reached in May…and about 1,800 of those points fell out just this last week and the first two days of this week. This means the Dow is presently down a little more than 14 percent from its high, and, as of Monday’s close, the other two key U.S. indices, the S&P 500 and the Nasdaq, had joined the Dow in reaching the “correction” stage.

Other issues have conspired to trigger the massive here recently, including: continued concern on the part of the global investment community that Chinese growth is slowing at an even faster pace than has been indicated; the collapse in the price of oil – as of this past Friday, oil prices dropped below $39 a barrel for the first time since 2009; and the Federal Reserve has been most unclear about what will happen to rates in the near term, and markets hate Fed uncertainty. Put all of this together, and you have a stock market that’s had enough, and wants to take a deep breath.

The question for many people now is, where do things go from here? Is the bloodletting almost done, or do we have a ways to go? There’s not really a basis for a massive collapse such as that witnessed in 2008-09, when the Dow dropped a stunning 54 percent from a then-peak of 14,164 reached in October 2007. However, while it’s suggested that we may not see a continued, substantial drop in points before things begin to stabilize somewhat, a lack of clarity in several areas (like China and Fed decision-making, for example) may well result in a “sloppy” market here in the near term.