Why I think the Ugly October in Stocks Is Just a Preamble

Saturday, October 27, 2018
By Paul Martin

by Wolf Richter
WolfStreet.com
Oct 27, 2018

Yet, the crybabies on Wall Street are already clamoring for the “Powell put.”

Let me just say right up front: The stock market did not “collapse.” It has experienced a sell-off that made some people’s ears ring, as sell-offs normally do, and October has been ugly so far, but it wasn’t a “collapse.”

This matters because the crybabies on Wall Street are already clamoring for the “Powell put.” But the folks at the Fed have been around, and they know what a routine sell-off looks like and what a crash looks like, and they’re glancing at these numbers, and they yawn. Because in the grander scheme of things, not much has happened yet. The next uptick lurks around the corner, powered by the dip buyers and massive corporate share-buybacks.

After the dotcom bubble, the Nasdaq plunged 78%. Wave after wave of dip buyers were rewarded with small goodies and then taken out the back and shot. Many companies disappeared entirely. That was an example of a collapse. That’s when the Fed got nervous.

Today there are only some segments that have gotten hit very hard, though it’s still no collapse, and we’ll get to a few of them.

The Dow was well-behaved. It fell about 3% for the entire week and is about flat year-to-date. Nothing special. The Dow is only 8.4% off its peak. And compared to a year ago, it’s still up 5.4%.

It’s not a crime for stocks to be flat year-to-date. Stocks might actually be down for the year, and they might be down for years. But people have forgotten, and younger people have never experienced it in their life, after a decade of blatant market manipulations by central banks that have created this centrally planned Everything Bubble that is now “gradually” deflating.

The S&P 500 fell about 4% this week and is only 9.3% off its peak. It’s about flat year-to-date (well, down a minuscule 0.6%) and up 3% compared to a year ago.

The Nasdaq fell 3.8% in the week and is down 12% from its peak, nearly all of it in October. But it’s still up 3.8% year-to-date and up nearly 7% from a year ago. This is a far cry from being down 78%!

Fed Chairman Jerome Powell isn’t going to get rattled by these numbers. Young investors who’ve never seen a real sell-off might, but Powell is an old hand, and this sell-off overall is nothing yet, especially after the huge run-up. For real damage to occur, the trip south would have to take a long time – years! And we’re just looking at the beginning of it.

And the crybabies on Wall Street are just crybabies.

The Rest…HERE

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