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Market Pessimism Sets In: Correction or Crash?

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Truth and Liberty Blog  |  November 21, 2018

Love him or hate him, when Donald Trump became President Elect in November of 2016, a new optimism took hold and the American economy began to buzz again. On Tuesday, November 8th, 2018 – hours before polls closed for the 2016 Election, the Dow closed at 18,332.74. On October 3, 2018, weeks before recent MidTerms, the Dow hit a record high of 26,951.81.

That’s a net gain of 8,619.07 – an incredible 47 percent.

During the ride up I have argued virtually the entire time that such gains are cartoonish and that we would be foolish to believe they are entirely real. I believed from the very beginning that the Trump Economy was being set up for a fall and now many are wondering if that fall has begun.

CNBC recently reported that when Democrats win the House of Representatives, historically the stock market struggles the following year. In the two weeks since the MidTerm Election a wide-ranging pessimism begun to take a hold of markets both domestically and around the globe.

The Dow closed yesterday at 24,462.32, down 956.63 / 3.76 percent since the closing bell Friday. That’s a loss of 2,489.49 / 9.25 percent from the all-time high set just 7 weeks ago.

As of now all 2018 gains have been wiped out.

According to a recent CNBC survey of Chief Financial Officers the Dow is expected to fall below 23,000. This would mean at least another 5.98 percent loss from today or 14.66 percent since the all-time high.

At the very least things have gotten Bearish out there and a correction is underway.

Tech stocks have been hammered in recent days, losing over a Trillion dollars in value based on recent highs. Again from CNBC:

Combined market capitalization losses since their 52-week highs hit $1.02 trillion on Tuesday:

  • Facebook: $253 billion
  • Amazon: $280 billion
  • Apple: $253 billion
  • Netflix: $67 billion
  • Alphabet: $164 billion

It seems likely that at a minimum things are coming back down to earth. From ZeroHedge:

“While there’s still no ‘panic in the streets,’ most traders are unconvinced that the selling will slow down anytime soon,” said Instinent’s head of trading Larry Weiss. “The flight to quality is now a flight to cash. It’s tough to convince anyone that now is the time to put money to work.”

Michael Snyder is willing to take it further:

Many just keep believing that their beloved tech stocks will eventually bounce back because they just can’t accept the fact that the party is over.  At this point, all of the “FANG stocks” have officially entered bear market territory.

Time will tell but it would be wise to plan and prepare today rather than react emotionally tomorrow if things get bad.

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