|
||||||||||||||
A global meltdown. That’s the only way to describe the last 24 hours worth of market action.
The carnage started in the Middle East, where markets open first on the weekend. Then it spread to Asia, Europe, and now, the U.S. While the Dow Jones Industrial Average managed to rally from down-1,100 or so in the early going, it couldn’t hold all of those gains. The benchmark average ultimately closed off another 586, bringing its three-day losses to almost 1,500 points.
Meanwhile, the Nasdaq Composite plunged 3.8% … the S&P 500 tanked to its lowest in 11 months … and the VIX gauge of volatility soared as high as 53.3. We are now firmly in “correction” territory, with all major averages off 10% or more from their highs.
Why is this happening? Is the selling just about over? What should you do now? Let me share my thoughts …
First, the “why”: Global markets have been under pressure for some time due to slowing economic growth, falling commodities, a rising U.S. dollar, and political instability. Major indices in many emerging market countries have dropped by 20%, 30%, even 50% or more in the last year.
|
|
| Markets throughout the world were in turmoil. |
The U.S. averages held up until recently, at least on the surface. But behind the scenes, many stocks and sectors have actually been deteriorating since the spring. I’m not just talking about obvious ones like energy, but also materials, transportation, and industrials.
More recently, some technology and financial stocks have joined the selloff. And over the last several months, the bond and currency markets have been signaling increasing trouble, even as stocks continued to hold up. That’s similar to what happened during the credit crisis.
Second, “Is the selling over?”: Markets look ugly in the U.S. right now, no doubt about it. But as I said earlier, there are stock markets all over the world that have lost as much as half their value in the last year. Some countries have also seen their currencies take out the panic lows of 2008-2009. In a couple isolated cases, they’ve plunged to their lowest levels since the 1990s – or ever.
Also, as I noted, the domestic bond market has been signaling that all is not well behind the scenes for some time. The spread between where risky bonds and stocks were trading recently widened out to a near-record level. Historically, that’s a major red flag for stocks because bond investors are considered the “smarter money.”
Bottom line? As bad as these last few days have been, we could be in for much more selling over time. That’s because domestic stocks could easily play “catch down” to currencies, bonds and overseas markets.
Third, “what to do now”: If you add today’s losses to the losses from last Thursday and Friday, you’re talking about one of the largest three-day routs in history.
As a result, we are getting dramatically oversold and sentiment is getting hugely negative in a hurry. That’s typically what you see before a short-term bounce, especially if the U.S. Federal Reserve or foreign central banks intervene to stop the bleeding. I wouldn’t be surprised in the least to see a rally – and possibly a large one – soon.
| “As bad as these last few days have been, We could be in for much more selling over time.” |
But given how severe the turmoil has been in several overseas markets … how serious the divergences between many stocks and the broad averages has gotten … and how worrisome the signals from the bond market have become, you can make a credible case that we’re nowhere near done with this selloff in the longer term. It’s even possible that the long bull market that began in March 2009 is over for good.
Fortunately, here at Weiss Research and Money and Markets, we have four paid services – covering specific sectors — that have warned of the impending selloff and helped subscribers to not only protect their wealth, but to profit from the turmoil. They include my Interest Rate Speculator, Larry Edelson’s Supercycle Trader and Real Wealth Report, and Jon Markman’s Tech Trend Trader.
As a matter of fact, each of these services have delivered strong gains for their readers during this tumultuous year.
In the meantime, keep your eyes on Money and Markets for all the latest updates. I promise you that we will get through this together, and that the Weiss team will do absolutely everything in our power to guide you to greater profits and protection — no matter what the markets throw at us.
Meanwhile, please do share your observations on the current market activity, the risks and opportunities out there, and what you’re doing in your own portfolios at the website. Your fellow investors will appreciate your opinions, and I will too.
Until next time,
Mike Larson
Â
Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
{ 15 comments }
The Fed Governors have all been too busy putting out fires in their waste baskets to notice that the building is burning down around them, so don’t count on Federal Reserve or foreign central banks intervene to stop the bleeding.
Most investors are suffering from Normalcy Bias, which leads people believe since something has never happened before in their lifetime, that it never will happen.
Normalcy Bias also leads people to interpret warnings and inaccurately reframe information in order to form and project an optimistic outcome which leads investors to ignore serious situations against all evidence.
In short, Normalcy Bias is a pain-killing drug which numbs a person to an impending crash like today and tomorrow and the next day.
If today was a “global meltdown”, then we surely lack vocabulary to describe an actual meltdown. If today was a meltdown, stay out of the stock market. Which is mostly what Mr. Larson advised during the 6 year bull market.
Negative interest rates for your bank accounts is the next bullet to swallow…!
Shemitah! Jim
I should elaborate. The seventh month of the seventh year is a time of financial peril. 2015, 2008, 2001,1994, 1987, 1980, 1973.1966. I could go on but the pattern is pretty obvious. It is a time of leveling, canceling obligations, and the remission of debt. Jim
Seems to me that comes from the Bible.
I am tired of the whiners. Mature savers are those who are suffering from “welfare for the rich†monetary policy of Greenspan and especially crafty Mr. Bernanke, who printed money out of thin air to support his evil filthy rich parasitic Wall Street buddies, who are nothing but money changers. The saving rate should be at least 6% not .00025%. The sooner the market crashes the better. It will flush out the weaklings and speculators. As I stated to my college professors over 40 yrs ago, a wealthy stock market does not produce real wealth and opportunity for the working middle class. Sitting in front of a terminal at Goldman Sachs is not gainful employment. They are just money changers who are feasting on the backs of working class Americans. Zero interest rate has only benefitted a very narrow elite money class in America. Two hundred percent increase in market value, yet real wages of productive Americans has actually decreased in the last 10 yrs. They lay off workers, outsource to India, and repurchase stock with zero interest then corporate earnings per share increase and “real” GNP never rises but the S&P rises another 500 points. Can this go on forever? Really?
After encouraging their own investors into margin loans, the Chinese Government are learning this as well. Real wlth is found in the gainful employment of productive assets.
Great post Ivano…!
So who was asleep at the switch when the Dow was down close to 1,100 points this morning? Apparently no one. Alas, the plunge protection team (PPT) has about as much control over our stock market as the Chinese government does over theirs. God help us all.
This “meltdown” is the best thing that could happen to the world. It’s most likely just a drop in the bucket of what’s yet to come, considering the debt situation which governments (politicians) have promoted all over the world in their race to the bottom.
Once debt has collapsed we will once again have a chance to build a stable economy.
Banks are normally levereged 15-1. When Lehman went down they were at 30-1. The fed is now at 77-1. They will crash and burn. We just don’t know when.
I always wonder when the crashes happen, who are the buyers?
When the markets fall rapidly, a lot of the potential buyers step back and watch. With very few buyers left, the bids get dropped rapidly causing the market to fall even faster. Until the market drops to a point where more buyers sense real value. Then they finally begin to nibble at a few of the stocks that they feel have sold down to a value which may even have dropped to below their true value on the books.
Discussing Thursday s market selloff, and what investors are missing, with Larry Glazer, Mayflower Advisors; Keith Bliss, Cuttone Company; and CNBC s Rick Santelli. Stocks were slammed Thursday in the worst trading day in 18 months, and investors sought safety in bonds, fearing a meltdown in emerging markets currencies and commodities is signaling a broader global malaise.