How Low Can We Go?


And so the carnage on Wall Street continues.

On Thursday, the Dow Jones Industrial Average plummeted more than 1,000 points for the second time this week; only Monday’s historic 1,175-point drop was worse in the average’s 122-year-old history.

The S&P 500 lost 100 points on the day while the Nasdaq Composite index gave up 275 points, as all three indexes declined by around 4%. They are all roughly 10% off their January 26th all-time highs, putting them in official correction territory.

The CBOE Volatility index, or VIX, which was lazing comfortably under ten for months, had shot back up to 34 again.

But is this something worse than a correction? Are we in the midst of another stock market crash—or at the start of a new bear market?

Unfortunately I have no definitive answer. GoldenEgg Investing® isn’t in the certainty business.; for that you’ll have to pay hundreds of dollars a year for newsletters that don’t beat the market anyway.

But I digress. Right now it looks to me very much like February 2016, when plunging oil prices drove stocks down more than 13% from their peaks. At that time, many people (including me) thought we were entering a new bear market.

Stocks bottomed and recovered then, and the market went on to many new highs.

And the overall picture is generally more positive now. The global economy is humming, earnings for the S&P 500 look ready to post double-digit percentage gains this year, and we haven’t seen the full impact of corporate tax cuts on companies’ bottom lines. The big selloff has even slashed valuations to more reasonable levels.

Yes, the January jobs report said wages would grow faster than the tepid pace we’ve been seeing, but let’s wait to see core CPI (the consumer price index without volatile food and energy prices), which will be released next week, until we start freaking out about inflation.

The one thing that does bother me is the ten-year Treasury note, whose yield has remained stubbornly high. During market panics like this one, Treasuries and gold become havens for frightened investors. This time, neither has budged much, perhaps suggesting the Federal Reserve may raise interest rates faster than investors expect.

This week, I interviewed Craig Johnson, chief market technician at Piper Jaffray, again for my MarketWatch column. He’s looking for a 15-20% correction, and that sounds about right to me.

Your GoldenEgg Investing® retirement investing plans are designed to limit your losses in corrections and bear markets yet give you enough exposure to stocks to profit when stocks rise. If you’re following one of these plans, there’s no reason to panic or sell.