Market correction of February 2018

Warning: Never, ever base your investment strategy off of free advice on the internet, it would be foolish and unwise to do so.

As of the close of the stock market on Thursday, February 8th, 2018, the stock market went into correction territory with a drop in the Dow of 1,032 points. A correction is defined as an immediate 10% drop from the highs of the markets.  It started the week prior with a 666 point drop in the Dow on Friday and then another 1,175 point drop on Monday.  The news media breathlessly reported that this may just be the signal for the end of the world as we know it and the harbinger of dark days to come.  International markets followed suit during the week with sharp sell-offs in the German DAX, the French CAC 40, and so on.  

What few in the media bothered to mention was that this 10% correction basically put the stock market values where it was a little over 2 months ago around the Thanksgiving holidays.  The markets had already recorded huge gains since the beginning of 2017.  Prior to this correction, just about every market analyst and money managers has said they believe a correction was coming and was needed to cool down the upward parabolic trajectory of stock prices.  Now that it has happened, the news media acts like this was a complete surprise.  This behavior of the media is a function of the 24 news cycle where they need a story whether real, imagined, or a combination  of which to keep viewers engaged and feeling like they need to stay tuned to the news.  I believe the term fake news applies in this case as the term “news” implies there is new information that you should be aware of.  

As a long-time observer and dabbler in the markets, I’ve always wondered what is the point of the frenetic stock trading that goes on daily.  Prices move up, down, and sideways on every piece of news whether relevant or now.  But in reality, the only time where macroeconomic news may have an impact on a specific company is if something fundamentally changes with world economic activity such as the attack on Pearl Harbor or maybe 9/11.  Barring any such event, companies release financial results and hold investor Q&A on a quarterly basis.  If anything happens outside of normally scheduled reporting of financial results, an 8K statement is filed and reported.  Everything else outside of the normal and allowed official communications of company results and events are either illegal (as in insider trading) or simply rumor and second guessing by investors and analysts.  However, let’s leave that discussion for another day.

The drop in the markets during the week was triggered by talk of the Fed raising interest rates higher and concerns around what this may do to an economy that has grown used to the free money policies of the Obama-era Fed.  Everyone knew there would be future issues when the Fed engaged in easing and that they will need to raise rates at some point which may cause some uncertainty.  No news here.  If anything, this correction is a perfect time to get into the market if you have been sitting on the sidelines.  Valuations are still pretty high compared to a year ago so pick stocks wisely.