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Black Swan? Coronavirus? Bernie Sanders? None of these are the reason for the Huge Stock Drop This Week

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And, no, this is not a Conspiracy to Stop Trump from Getting Re-elected

This week, so far, the Dow Jones Industrial Average lost over 1900 points in two days. Although the percentages were not record breaking the point totals qualified as the third and fourth highest loses ever. In the S&P the two day loss percentage was the largest since 2015: 6.3%, while the dollar calculation in market value for that same index was $1.7 trillion, as tabulated by S&P Dow Jones Indices.

In addition to the supposed calculations above the an all time record low for the 10-year Treasury yield was also noted. It is possible that in some cosmic way all of these factors played a role, except perhaps Trump’s delusional conspiracy theory.

You can be sure that if the market continues to decline in a prototypical Bear market pattern, the President will twist this theory and any other that comes to mind in an effort to blame anyone and anything. And, in truth, the coming issues trace back to the stimulus “rescue” actions (TARP) taken in 2008 and many actions not taken since. However, that does not absolve the current occupant of the White House of his ill-advised self-congratulations each time the market made new highs.

There is a perverse tendency to ascribe correlation to virtually anything that is negative in the news on a given day to a concurrent stock market decline. The same bad news on a day the markets rise suddenly morphs into strong “shrugging off” of the “headwinds” or are seen as proof of a “resilient” bullish potential.

From the Ridiculous to the Sublime, Creative Explanations for the Consecutive Down Days Abound

How about Senator and Presidential candidate Bernie Sanders causing $1.7 trillion in losses by threatening to become the democratic nominee – which could happen maybe in July? Or it’s just a “Black Swan” out of nowhere a one in a trillion event that is aimed at some specific detail in your life – like Trump projecting that this is all a plot to ruin his re-election hope. All just reasons to pretend that Bull markets are not followed, inevitably, by Bear markets, which, unfortunately they always are.

However, as counterweight to that pattern of assuming a correlation where there is none, are other facts. Such as the fact that the Coronavirus has been known and killing people for months and during that entire time the markets have risen substantially.

And, further, these kinds of superficial causality explanations fail to add context of anything beyond news stories. For example, this has been a nearly 11 year Bull market, the longest in history and more than twice as long as the 4.5 year average.

The measurements that show a likely peak in sentiment and a potential end (bull markets are always followed by bear markets, without exception) to the climb have been flashing red for some time. Of course, since many pundits are invested, literally, in an endless continuation of rising stock prices, there are those that argue that there were several tiny baby bear markets during the last decade, which would negate the longest ever status.

Many indicators and the wise predictors among asset managers are pointing towards at least a drop of 38% likely, which would qualify as a Bear market, but that is also a very conservative estimate.

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Further, if available data and common sense are taken into consideration, it is possible that the markets could regain what has been lost in the last week and once again enter positive territory for the year. It is not likely, however, that any such bounce would be anything beyond a temporary respite before the Bear is back.

And the Cornavirus? We all hope that it will be contained and we can all rest a little easier. But don’t plan on stocks having a lock on the ups and downs of that saga, anymore that they are trading in lock-step with the trade war with China, for example. It is absolutely possible that both of those issues could be resolved and have no positive impact on stock prices whatsoever. Of course, if that happened there would be a new convenient scapegoat waiting in the wings.

All that being said, for anyone holding substantial sums in the markets, or if you happen to be an incumbent President, there is a dose of double trouble in the wind. Both the rapid plunge in stock prices and the rise of a potential global pandemic are negative and scary. One just doesn’t happen to be the cause of the other.


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