Keep everything in perspective: Monday’s headlines were scary if you saw a headline like this: “Dow plunges more than 1,100, largest single-day point drop in history.” Everything about that headline is true and Monday was certainly a miserable day for the markets, however, in percentage terms Monday only ranks as the 108th worst day in history. The single largest daily drop was Black Monday in October 1987 the Dow dropped 22%. The Dow would need to drop approximately 5,300 points in a single day for an equivalent drop.
The Dow hit an all-time high on January 26th of 26,616.71 and after Mondays decline was 2,271 points lower sitting at 24,345.75 an 8.5% decline. It is still not considered correction territory which is a 10% or greater loss. This is not to say that the market won’t get worse but 10% or greater corrections are common, according to investment firm Deutsche Bank, the stock market, on average, has a correction every 357 days, or about once a year. This declines just seems to feel worse, probably because we are dealing with such large numbers in terms of points and the last 10% correction was in August 2015.
Why is the market falling? It is certainly difficult to point to a single factor and the markets were likely overbought after significant January inflows and gains. The biggest contributions to market losses may actually be good economic news, in other words good news for the economy may be bad news for stocks. Last Friday’s Department of Labor Jobs Report showed wages are growing and unemployment is historically low. Companies are forced to pay more to retain and attract employees. To offset these increased expenses companies will eventually increase prices this leads to inflation. To combat inflation the Fed may be forced to raise rates more than expected thus ushering out the era of “cheap money.”
Please let us know of any concerns that you may be feeling, we are more than happy to meet to review your portfolio. As always, please do not hesitate to contact us with any questions you may have at (610) 825-3540.