The peace and calm the stock market saw in 2017 has officially come to an end as the Dow Jones Industrial Average fell 1,175 points today. This was a decline of 4.60%. Over the last six trading days the Dow is now down 8.54%.
This has shocked a market that had not experienced a decline of 5% in over two years. 2017 was characterized by extremely low volatility in the stock market. Everyone knew such low volatility could not continue but no one knew when volatility would spike.
Many times during declines like we have seen in the last week, analysts rush to assign blame for the decline. The bottom line is that often times there is no major reason for the decline other than this kind of thing just happens from time to time in the market.
Tonight some of the top reasons given for the decline are:
1) Fear of interest rates rising too quickly
2) Will rising wages trigger a significant increase in inflation?
3) Did computer/machine trading cause indiscriminate selling?
4) Will the new Fed Chair, Jerome Powell, look to increase the pace of Fed rate hikes from what we have seen from Janet Yellen?
In October of 1987 the Dow fell 508 points, which was 22.6%. That was a much more significant decline than what we experienced today and many investors still don't know the reason that decline was so steep.
It is important to keep in mind that this decline has returned the market to levels last seen in mid-December, or less than two months ago. The positive data that drove the market higher in 2017 and early 2018 are still in place. Namely, strong earnings growth, improving economic growth both in the U.S. and abroad, interest rates that are still low on a historical basis and the tax bill that has already greatly benefited companies and workers.
That being said, stock market declines and market volatility are still unpleasant. Obviously, no one has a crystal ball, so we will continue to closely monitor your portfolio and make any necessary adjustments should they be needed.
One last thing, do not be surprised if tomorrow morning (Tuesday) stocks open down an additional 2%-3%. If that occurs we would then see if traders become buyers and restore some calm to this frazzled market.