Is the Stock Market Facing a Minor Correction or a Major Meltdown?
While the stock market has been going gangbusters recently, many analysts are growing increasingly concerned that a downturn is looming. There are several factors that will determine how bad the downturn will be.
The financial, real estate, and homebuilding sectors have led the market’s recovery since March. If the stock market run is to continue, it’s likely that these sectors would lead the charge. However, it appears that each of these sectors may have peaked in mid-September through mid-October. For example, the SPDR S&P Homebuilders ETF has fallen 9.97% since September 16th.
The technology sector as a whole is not picking up steam. While Apple, Microsoft and Amazon have all reported better than expected earnings, such tech stalwarts as Intel and IBM have been declining. Overall, the NASDAQ is trading lower now than before the start of earnings season. In addition, earnings reports are often a lagging – not a leading – indicator.
Adding to the potential for a downturn is concern about demand. While production has certainly increased, has the uptick been a result of restocking inventories or real demand from the consumer? Shipping companies – which are a good proxy for demand since they ship the products from manufacturer to consumer – have been reporting significantly lower revenue, which is not a good sign.
So is the Dow overvalued at 10,000? The Dow is 50% more expensive than it was just seven months ago. Many argue that it has come too far too fast.