October Market: Correction or Start of the Bear Market?
It’s that month of the year again; the month that scares the investors. The Panic of 1907, The Great Depression of 1929, and The Great Crash of 1987 all started in the same month, October. While this might only be a coincidence, this year’s October scared the investors as well.
In this month alone, Nasdaq lost nearly 9% and S&P 500 also lost around 7%. This was the worst month for S&P 500 since September of 2011, and the lost totaled up to $1.91 trillion. The four most well-known stocks, also known as FANG, lost $300 billion in market cap. Amazon, Netflix, Facebook, and Alphabet lost 20.2%, 19.3%, 7.7%, and 9.7%, respectively. Although S&P 500 rallied 3% in the last two days of October, it has been a horrible month for the investors. Now, one important question for investors arises: is this a correction or is this the start of the new economic crisis?
If this is not the start of a bear market, this month marked the longest bull market in the American History. The market has been growing since March 2009 for around 10 years. While the economy has been great, investors are starting to fear the market because the usual cycle brings a bear market after 9.1 years of bull market on average. Moreover, seeing that the growth has been slowed down after a long fast-paced growth in the market, more investors are starting to sell-off their securities in the market to wait for the right timing.
Government’s intervention in the economy by increasing the interest rate alarmed investors nervous about the future economy because the FED is looking to increase the rate more until the market looks stabilized and rightly valued. Although the FED’s intention is to help the economy grow more stably, the market’s reaction was very sensitive. If the market was overvalued and this was a correction for the market, the decline in the market in October will make more sense.
Another factor that is impacting the economy greatly is the trade war between the US and China. The trade war originally started because President Trump wanted to negotiate the US-China trade deal more “fairly.” However, Trump’s action of tariffing $ 200 billion worth of China’s products made China to basically do the same, and the trade war only became worse now. Due to the trade war, manufacturing companies in the United States are suffering because many of these companies use imported products from China. If the manufacturing companies cannot be efficient with their costs, the general production in the United States will be negatively impacted by a huge amount.
Now, with all of these and more going on in the economy, is this a correction or a start of the bear market? We will eventually know the answer after a few months, but if the relationship between the US and China does not improve in the short term we should be scared.
Sources:
https://www.cnn.com/2018/10/31/investing/stocks-markets-october/index.html
https://www.cnbc.com/2018/10/31/the-stock-market-lost-more-than-2-trillion-in-october.html
