Bill Poulos: Dow Drops 800 Points-look out below, maybe not.
Bill Poulos is an avid investor, financial educator, and retired automotive executive. He has been trading in the markets since 1974. Bill is the co-founder of Profits Run, Inc. The company offers financial research, training, software, and coaching. He feels passionate about helping kids become inspired to lead successful lives. He is often published in Investing. He and his wife, Karen, live in Wixom, Michigan. Below Bill explains why there is no reason to be nervous about the 800 point drop in the Dow.
A few weeks ago, the markets made all-time highs. Now the Dow has dropped over 800 points in one day. The media is abuzz with talk of the end of the bull market, fear is rising in the market, interest rates rising concern Wall Street, the trade war with China weighing on the market, etc.
But what is the actual impact of today’s 800 point drop?
Well, the market is now trading at the same level it was back in July, just a couple months ago. It doesn’t sound like there is much to be concerned about.
The economy is as strong as it’s been in years and it’s projected to remain strong for the foreseeable future. Unemployment is at all-time lows while job creation is at all-time highs. Corporate earnings are very strong and there is relative peace in the world — at least no war between major powers.
So, why all the gnashing of the teeth, trotting out of the talking heads, looking for any shred of negative news that could possibly explain why the market dropped 800 points?
Well, it’s because the media is not really in the business of assisting investors with their investment strategies. Rather they are in the entertainment business and they know that when the market drops like it did today people are emotional about it. They are fearful and the media plays off that.
More sober minds know that this drop is not unusual given the relentless climb of the market since February of this year. Only interrupted sporadically by an occasional selloff of less than 10%. Also, students of the market understand that before a bull market ends it normally will take several weeks and months of topping formations with lower highs and then eventually lower lows. At some point then the market would be prime for bear market territory.
It’s far too early to project the beginning of a bear market right now this is only a small correction in the scheme of things. Furthermore, the seasonal tendency of the market is to bottom in October. Then to rally from there to year-end and into January. I would expect that this is most likely to happen again this year. We should see the market probably drop further from here. Perhaps 100 to 300 Dow points, maybe more before finding a bottom in the next week or so. Consolidation, then moving sideways to a little bit higher and then setting the stage for a year-end rally.
Of course, anything can happen in the markets but that seems to be the most likely scenario at this point.