The big story today in all of the financial papers, on all of the financial sites, and on all of the financial news shows is, of course, about the market correction and its causes. Reactions have ranged from “Hey everyone, let’s not panic,” to “Prepare for Armageddon.” And interestingly, the movement of the market represented just this bipolar sentiment. “The stock market whipped between nauseating drops and roaring comebacks on Monday in a historic day of turbulence,” said an article from NBC News. The Dow dropped nearly 1,100 at the opening bell, came within 115 of break-even, and then dropped again ending the day with a total loss of almost 600 points.
An article in CNN Money was quick to temper fears, saying, “It’s ugly. But before you panic, let’s put this in perspective. This is hardly the worst day ever for stocks. This pullback also comes after six years of stellar stock market gains.” As we all know, markets don’t just gain and gain forever. “I’ve been of the view since late last year that this market is in a vulnerable position,” Jim Paulsen, chief investment strategist and economist for Wells Capital Management is quoted as saying in the above mentioned NBC News article. “It’s gone almost straight up for six years.”
While economic prospects if Paulsen’s assessment is correct could make many investors uneasy, it would support one of the CNN Money article’s more optimistic points, made to prevent panic. “Stocks don’t just go up. We all know that, but it’s been easy to forget it in recent years…The S&P 500 has gained about 220% in the past six years. The plunge in the past few days has whipped out a mere 11% of those gains.”
The primary causes of the loss of investor confidence – the state of the Chinese economy and depressed oil prices – do not have quick fixes. But if rash reaction can be staved off, the correction can remain a correction and not turn into something much worse.
from Sarang Ahuja http://ift.tt/1PNYSIx