23 Oct Stocks Falling Hard
Stocks are once again down sharply, with the DOW falling 500 points in early day trading. The S&P 500, which is my primary data source for tracking stocks, is currently beneath its 200-day moving average once again. In fact, it is now further below this critical trend line than it has been in several years. If stocks continue to fall, and open lower again tomorrow, this could spell trouble for US stock markets going forward. However, the reality is that stocks have only lost just over 50% of their recent gains, which means this could just be a normal mid-rally course correction. My guess is that we will see stocks recover here in the near term and move up strongly thereafter. If I’m wrong, and stocks continue to slide, we will see interest rates improve. But as I mentioned, I wouldn’t count on that.
The fall in the global stock market brings many to question whether this is a short-term retracement, which is healthy, or if the stock markets are finally recognizing the impact of the Federal Reserve rate hikes over the past year. If it is the latter, we will know here very soon. Stocks here in the US have already nearly wiped out all the gains of 2018, and in Europe have wiped out gains made in both 2017 and 2018. If large hedge funds begin to dump stocks at high levels, we could see the losses perpetuate further. Sit back, grab some popcorn, and let’s see how this plays out.
Although there is no need to immediately rush to lock, I feel confident we will see stocks improve. This will hurt the bond market and create upward pressure on interest rates. I feel the prudent move is to maintain a locking bias.