Is the Damage Done?

 

Over the past week, the stock market has been hit by a hurricane.

Since reaching their all-time highs October 3rd, the Dow Jones Industrial Average gave up nearly 1800 points (or 6.6%) and the S&P 500 lost 200, for a 6.9% decline at Thursday’s close. The Nasdaq Composite index was off 175 points, or 9.6%, from its August 31st peak.

On Friday all three indices rallied nicely into the close as investors picked through the rubble for bargains. Clearly the Dow around 25,000, the S&P near 2,700 and the Nasdaq in shouting distance of 7,000 again were too tempting for bottom fishers to resist.

The selloff began with some remarks by Federal Reserve Chairman Jerome “Jay” Powell suggesting the economy was very strong and the central bank would keep raising short-term rates at a steady clip. It was a restatement of what’s been Fed policy for the past couple of years, but traders professed to be surprised. They sold off the ten-year Treasury note big time, sending its yield soaring to 3.23%, its highest in 7 ½ years.

The sudden jump in yield—it had settled back to 3.14% Friday—led to a mini-panic among investors who dumped both stock and bond ETFs. The Nasdaq lost almost enough to be in official correction territory (down 10%), while the Dow and S&P are well on their way.

So, is the worst over?

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