It wasn’t just the Dow that got hammered today. The Nasdaq Composite fell 3.5% to 4,706.04, while the S&P 500 dropped 3.2% to 1,971.10. The small-cap Russell 2000 declined 1.3% to 1,156.79. The S&P 500 is off 7.5% from its all;-time high, while the Nasdaq is off 9.8% and the Russell 2000 is off 10.7%.You can find any economist you want willing to say this is just a hiccup and it will recover, or that it will get worse. For my two cents, I don't think it's over. A 20% correction down to 14630 is not only not out of the question, it could well be the best case scenario, as I will explain. (I recall telling Mrs. Graybeard we'd see Dow 16,000 by the end of this month, but I don't seem to have written it down anywhere). In 2014, I posted these words from Seeking Alpha, quoting Andrew Lapthorne of SocGen.
This week alone, the S&P 500 lost $1.1 trillion of value. As S&P Dow Jones Indices’ Howard Silverblatt put it: “Ouch.”
"The number of 1% down days for the S&P 500 in any given year has averaged 27 since 1969; the S&P 500 has seen just sixteen 1% down days over the last 12 months. It has now been 468 days since a market correction of 10% or more, the fourth longest period on record, and, as we show below, the annualized peak to trough loss has only been 5% compared to typical annual drawdown of 15%."The last time we had a 10% correction was in October 2011, about 1400 days ago. A 20% correction would be like a reversion to the mean, which some think we're overdue for. The concept of reversion means the longer something remains an outlier, the more likely it is to revert back to the average. In this case, it means the longer US stocks go without a meaningful correction, the more statistically likely a meaningful correction becomes. A 20% correction meets the definition of a bear market and would certainly be meaningful. It would be bad but nowhere near as bad as it could be.
In the articles which I've been cautioning about a possible snap back coming this September/October, like the last one, I've been referring to this graphic from my 2014 post. There's one little difference here: I put a red mark near where we are today. I say "near" because the May record high was off the top of this chart, and the chart was bad enough to start with!
this year. The target for that snap back (lower line) looked to be 6000. Dow 6000? There would be blood in the streets.
Has the new higher high invalidated this; that is, did it just set the snap back further into the future - and predict a lower DJIA of around 5000? I. Don't. Know.