It seemed inevitable that after six consecutive days of declines, stocks would bounce back strongly. And they did.
On Thursday, the Dow Jones Industrial Average soared more than 400 points, or 1.6%. The S&P 500 index rallied almost 50 points, and the Nasdaq Composite skyrocketed 200 points or almost 3%.
Alas, it didn’t last. Late Thursday afternoon, Amazon reported record third-quarter profits, but slowing revenue growth and holiday-season sales projections that were much, much lower than Wall Street had projected.
Down, down went the stock, plunging 8% in after-hours trading. Alphabet, parent company of Google, followed suit, losing 4% of its value after it reported strong earnings but slower sales growth.
Asian markets sold off Friday, followed by Europe and the Nasdaq Composite opened sharply lower—and why wouldn’t it, as two of its great bellwethers reeled. The Nasdaq, Dow and S&P 500 closed down sharply Friday.
So, how low can we go?
All three major indices remained well above their February-April lows, a critical support level. As of Thursday, both the Nasdaq and the small-cap Russell 2000 were down more than 14%, indicating that both these markets are comfortably in correction territory.
Some of this is pretty normal: We’re in the third consecutive quarter of 20%-plus earnings growth and the impact of last December’s tax cuts already has been digested by the market.
Now investors are trying to gauge the effect of rising interest rates and President Trump’s trade war with China. In their earnings conference calls, companies like 3M, Ford, and Harley Davidson have said the tariffs will add millions of dollars to their costs.
We don’t know how long the trade war will last or how deep it will cut. We can estimate which companies will be hurt and by how much, but we can’t be sure.
That huge uncertainty, along with big question marks on whether higher interest rates will slow the economy and make bonds more attractive than stocks, will keep investors guessing for a while.
I don’t think the bull market is over quite yet, but risk is rising. Our GoldenEgg Investing® retirement investing plans have been in batten-down-the-hatches mode since last summer, protecting subscribers from corrections and more. We may have been a bit early, but so far, despite two big upward moves in stocks, we haven’t been proved wrong.