Stock Market Correction vs Crash
Is the stock market correcting or is it about to crash? So last week ending August 21, 2015, we saw the stock market pull back hard on Friday. If we look at the SPY as the benchmark for the market as it is broad index of 500 stocks, we saw it pull back with heavy volume (over double the average volume).
To answer the question Crash vs. Correction, everyone has an opinion, but nobody really knows for sure, even experts. What we do know is that bull markets have cycles, usually about 5-7 years on the average. We are in year seven of this bull market, which started on March of 2009. Look at the chart below. This shows us a pattern of Bull and Bear cycles for the last 20 years. We had a major Bull run that peaked around July 31, 2000. Then we transitioned to a bull marked that bottomed around August 31, 2002 (2 year bear run). The next bull run peaked around Sept 30, 2007 (5 year bull run). Then we transitioned to a bull market that bottomed around February 1, 2009 (less than 2 year bear run). The current bull market has peaked around June 30, 2015 (6 year bull run). We are seeing the beginnings of the next Bear Market now on January 9, 2016. Don’t be fooled by market rallies at this point, the market is showing its hand now.
What do we know is that the economy has improved since 2008, but is still not great, there are jobs, but many people are still out of work. Where is the proof? The monthly jobs report shows that new hires are averaging about 220-330k jobs per month. But only 40% of those new jobs are full time. We also know that the unemployment number of 5.3% is not counting people that have rolled off of unemployment benefits, that still can not find work. What about the Baby-Boomers who are retiring at a rate of 10k per day or 300k per month? Wait, so if 300k boomers are leaving the work force per month and the full time new jobs being created are around 120k per month (40% of 300k) we are not even back filling the jobs vacated by the boomers. The United States is 18 trillion dollars in debt and it is still growing, thanks to your politicians.
Globally we see China’s economy slowing, Europe is no better. We see intervention in every market across the globe, China is trying to prop up their stock markets, they are lowering or devaluing the yuan to make their product cheaper and more affordable to foreign consumers. Japan is doing their version of quantitative easing buying bonds and injecting money into their stock markets, Europe too.
The world is becoming a more dangerous place as the United States retreats from its role of the Worlds police. We have reduced our military to levels close to pre WWII. Iran is building their nuclear program, China is building islands in the China sea with military installations. Russia is testing us by buzzing our coast lines with their aircraft, and Putin is looking for his next land grab. North Korea is threatening war with South Korea, Then there is ISIS, need I say more.
Ok, so where is the good new? Oil prices are low and consumers are getting a much needed break at the gas pump. The Fed still has interest rates at zero, mortgage rates are low if you have a job.
The stock market has been locked in a trading range all year. We haven’t had a major pull back or correction since 2009, with the exception of few pullbacks of about 5%. Stock markets don’t go straight up or straight down. We are about 7% off of the all time high right now on the SPY (correction or crash) you make the call. We are oversold here if you are scared you can sell on rally’s to get to your comfort level. If you are mostly into cash this could be a buying opportunity. Remember with low interest rates, there is no good liquid place for money but the stock market, right now.
Most of the stock market is already in a bear market. Read more