Last week the Dow Jones Industrial Average lost almost 1,100 points or 4% of its value. On Monday it lost more than that in a day.
At the market close, the Dow had shed 1,175 points, or 4.6%. It was the worst single-day point loss in history, though on a percentage basis—the only thing that counts—it was well below five single-day 7% declines in 2008-2009 and of course the 22.6% one-day plunge during the October 1987 stock market crash.
The S&P 500 also suffered a sharp decline, off more than 100 points, and the Nasdaq Composite index fell more than 270 points on the day. It was a bloody massacre.
So, where do we stand?
From its all-time high of Friday, January 25th, the Dow is off 8.5%, the S&P is down 7.8% and the Nasdaq has slid 7.2%. All those declines are well within correction territory, which ranges from 5% to 20%, where some people start calling it a bear market.
The sell-off has been sharp and steep, but as I wrote in last Friday’s market commentary, it was long overdue.
I’m not panicking, nor should you for several reasons.
First, this is still a correction. As I wrote today in my MarketWatch column, the underlying economic fundamentals look strong and the fear seems overblown. In fact this sell-off may cause new Federal Reserve chairman Jerome Powell to delay the anticipated ¼-point rise in the federal funds rate in March. (That’s what his predecessor Janet Yellen did a couple of times.) My best guess is we’ll see a 10-15% drop from its highs—more likely close to the latter now—before it ends.
Second, it looks like the panic is coming to a head very quickly: The CBOE Volatility Index (VIX) closed above 37, almost doubling from Friday’s close. We haven’t seen levels like this since September 2011, when the debt-ceiling crisis came to a climax and the VIX hit 42. It peaked near 60 during the height of the financial crisis. This is way, way, way out of proportion—underlying conditions aren’t anywhere near as scary as they were then, so I expect the panic to burn itself out.
Finally, the yield on the ten-year U.S. Treasury note, which was supposed to have been the whole reason for this sell-off in the first place, has retreated from its peak of 2.85% last Friday to close at a yield of 2.79% as buyers rushed to the safe haven of Treasuries. The yield may move higher again but at least for now it takes some heat off stocks.
We are making no suggested changes in your GoldenEgg Investing® retirement investing plans. They have been conservatively positioned for a while and are now built to withstand a bear market. We also didn’t touch the bond portion of these plans, because we weren’t convinced a true bond bear market has come. We will be watching both for, respectively, buying and selling opportunities in the weeks ahead. But for now, stay the course.