Market Correction: Why You Shouldn't Panic
By Dale Gillham | Published 10 March 2020
In this week's US Stock Market Report, Dale looks at the correction on the US stock market and discusses why you shouldn't panic.
The jobs report for February is out and the good news is that the US has added 273,000 new jobs with this figure beating the expectation of 175,000 new jobs. Other economic indicators are also stable with unemployment sitting around 3.5 percent, while consumer spending has remained strong.
In short, the predication for the US economy in 2020 is good as it has good fundamentals. That said, these figures do not take into account the effect the Corona virus may be having on the economy, so the March figures will be eagerly awaited.
In response to huge pressure from the media and the public, the Federal Reserve cut interest rates by half a percentage point. This was done in an effort to support and even stimulate the economy in the wake of the Corona virus. A rate cut effectively makes it cheaper for businesses and individuals to borrow and hopefully spend more. That said, I think the Fed may have acted too soon as the economic indicators are not really suggesting a recessionary environment any time soon.
When looking at the market, last week’s news was really a tail of two stories, with many conflicting reports, articles, blogs and videos. Some were even suggesting that the Dow moves up because of these, while others were suggesting it moves down based on these reports.
So what should you listen to and, more importantly, what should you do?
To understand this, let’s look at the facts. The Dow fell 14.7 percent from 29,568 points on 12 February to last Fridays low of 25,226 points. However, it closed higher on Friday finishing the week down 12.5 percent. Last week the Dow fell around 1,300 points on Monday before rising around 1,200 on Wednesday only to fall nearly 1,000 points on Thursday.
In comparison, during the GFC it took 46 days to fall from the high in October 2007 to a low in November 2007, before it rose 8 percent to retest the highs. We need to remember that markets do not crash at tops, and that they always retest previous highs. Given the speed of the fall, we are yet to see a retest of the high, so I expect this will occur this week and possibly over the next two to four weeks.
This next rise will tell us a lot about the state of the market because in my opinion the Dow is just coming back to its long-term momentum, which means we will see the bull market return. Right now, I encourage all investors to remain calm and like all storms, the reaction to on the market will pass.
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