Monday’s plunge in the markets was enough to make you stop and take notice. But the sky isn’t falling. We knew it was coming – we’ve been saying stocks were due for a correction for the past year and a half (see our 2018 outlook here). And it’s ok. It’s a natural part of the market cycle.
It was about time.
As usual, the media is going to make the most of this. It’s how they get you to listen, click, or read. “The worst single day ever” for the Dow is what I’m seeing most often right now. And while it was big in terms of points, it was not the biggest percentage drop. Think back to black Monday in 1987… When the Dow was at only 2200, it dropped 508 points – and that was a whopping 22% drop! By comparison, today’s drop of 1,175, while the single biggest drop in terms of points, was only 4.8% from Dow 25,521. A significant drop. But not the biggest, by far. And it doesn’t mean the end of the bull market.
Why not? First of all, a 10-15% drop is typical in any given year, even in the middle of a bull market. The average bull market correction is -14% and lasts about eight months total, down and back up. We are currently down about 8% from the market high on Jan 26th. So, It would not be surprising if we had another 6% to go…or a little more, or less. But if history is any indicator, it should be fairly short, and then markets should move forward again.
The second point to remember here is the economy that is fueling the bull market is strong. The Wall Street Journal’s monthly survey of economist are forecasting only a 15% chance of recession. The Conference Board’s Leading Economic Index points to continued economic growth at least through the first half of 2018. And this economic strength is global right now. There are currently fewer countries around the globe in recession than at any time in recent history. And this synchrony provides a positive feedback loop that benefits all.
So, as much as the media is going to want to make you think the sky is falling, it’s not. It’s a great opportunity to go out and dance in the rain a little bit. And maybe even buy some of those falling stocks, if you haven’t already.
