Today, the market is continuing the fall from yesterday. The Dow was down 600 points at one point in a broad based sell-off in stocks.
The almighty tech sector, which has been a big driver of market performance led the declines. The hot tech stocks, nicknamed FAANG (Facebook, Apple, Amazon, Neflix and Google) fell about 20 % from their respective highs. This is considered bear territory. Facebook got crushed, dropping 40% below its 52-week high. I bet you will see articles tomorrow citing how many billions poor Mark Zuckerberg lost in today’s drubbing.
When the stock market peaked in September, the tech industry accounted for 50% of the gains for the 2018. Since then, FAANG now accounts for roughly a quarter of the market’s decline plus the sharp sell-off will add to that. The New York Times credits the lack of investor faith into big tech because of growth slowing down, the trade war with China, numerous privacy lapses, security issues and mismanagement.
Bitcoin, supposedly the antidote to the stock market, and the pathway to billions, is down from a not-so-long-ago high (which means I was too lazy to find the exact date) of $20,000.00 to now about $4,500.00. For those who bought into the hype at the high, those speculators are not too happy.
The mass media points to an array of reasons for the declines, including a Democratic majority in Congress, rising interest rates, trade wars with China and other countries, the Republican-led tax cuts not helping enough, worries that the best times are behind us, stocks moved up to quickly and are now too expensive, institutional investors (such as hedge funds) wanting to lock in profits before the year end to ensure they receive a bonus, a delayed reaction to Ariana Grande breaking up with Pete Davidson and worries about what wacky thing Trump will Tweet next. Also, since everything else lately is completely crazy and chaotic, why shouldn’t the stock market join in the fun?
Amidst all the noise by the media surrounding the drop and accompanying Armageddon, let’s put things into a proper perspective. Since the financial crisis in 2008, the stock market has been on an incredible run with an almost-uninterrupted upwards trajectory. This type of meteoric rise without a correction—about a 5% or more drop—is extremely rare. Stocks never go straight up forever. There is always something that freaks out investors, which causes them to sell stocks and bonds, thereby creating downward pressure on prices. The drop then frightens others and the market falls further. The reasons could change, but there is usually some event that shakes the confidence of investors. This decline then scares others and causes even more people to sell. It looks like we are now in correction territory for some stocks and a bear market (down over 20%) for others.
Hopefully, this is only part of the usual correction cycle, which will afford savvy investors the chance to buy stocks at a cheap price—as opposed to the beginning of a long, drawn-out bear market or worse.