After nearly a year of near continuous growth under the new presidency, the stock market plunged this past Monday. The Standard and Poor (S&P) fell by nearly four percent, erasing its gains made in the Trump era. Such a fall off was the worst experienced since 2011. The Dow Jones plummeted as well, recording its biggest drop ever at over 1,000 points. The last drop of this magnitude occurred in 2008 on the eve of the financial crisis.
According to market analysts, the stock market has entered a period of “correction,” a somewhat arbitrary term that describes a drop of over 10 percent in the stock market.
Such a fall this time, however, is not indicative of such dire economic circumstances. Over 10 corrections have happened in the past 20 years, and only two of those corrections led to further economic downturn.
While the drop was volatile, such fluctuations are normal in most markets, as Noah Weisberger, a manager at AB Bernstein, explains.
“It’s disquieting, it feels terrible, it’s eye-popping when you look at the screen, but it doesn’t yet tell you that something is broken,” he said. “It’s certainly a change in behavior relative to 2017, but then again, 2017 is an anomalous period with incredibly low volatility in the market, a very smooth glide-path higher.”
Such a downturn after relative stability tends to provoke nervousness in investors. However, while such nervousness causes further drops in the market as investors continue to sell stocks, experts are confident that the fall off will not lead to recession. “When the nervousness hit, a lot of people who were thinking of quitting hit the exits,” said Bruce McCain, chief investment strategist at Key Private Bank. “A lot of people want to let it settle out a bit and really make sure the worst has past … [but] for our standpoint on where we’ll be over the next year: We see no signs of recession.”
After a year of tranquility, it appears that the markets are returning to the median. Such a drop, while not an enormous cause for concern, signifies that last year’s trend was not the new normal. As the rest of the year continues, investors will continue to carefully watch the market in this new period of volatility.
