The more than 10 percent drop in the stock market is not a good thing. That is for sure. But it is nothing to panic over – at least not yet. It needs to be put into perspective.
By financial analyst definition, a 10 percent drop is called a “correction” — not a panic and not a crash. It is what the market does from time to time when stocks are determined to be over-valued. It is what they also call “profit taking.”
To oversimplify the dynamics, it happens when the big-time investors believe that future growth may level off. They will not get the return on the investments they desire. They move their money into other investments – bonds, gold, silver, precious gems and collector plates.
Such a correction is long overdue. Some even argue that we are overdue for a recession. What has been remarkable about the President Trump economy – and it is his economy – is that he continued to soar at a time he should have cooled down. In fact, in the last year of the President Obama administration, the economy was slowing down.
Trump’s tax cuts, deregulation, and pro-business policies induced some high-octane jet fuel into the economy. That resulted in record-high stock process and record low unemployment. Wage growth was on the uptick and consumer confidence (spending) at an all-time high.
We must remember that when Trump assumed the presidency, the Dow-Jones Average was at approximately 17,000. In three years, it rose to just under 30,000 – almost double. Just days before the stock began to plunge on the news of the Coronavirus epidemic in Asia – and spreading to other countries – the stock market broke another record.
The current correction was not due to stocks being overpriced, but from the very real concern that the interruption of the supply chain grounded in China would reduce the availability of imports into America – items used to make cars and almost anything else. And items to sell through our retail outlets.
The anticipated decrease in profits that fueled investor confidence was the damaging blow. It did not help when Goldman Sachs predicted that there would be virtually zero growth in profits for the remainder of the year.
Keep in mind, that it is GROWTH of profits that is being tamped down. CNN’s Jake Tapper ignorantly reported that there would be “NO earnings (profits)” for the rest of 2020. That WOULD BE a disaster – and was FAR from what Goldman Sachs was projecting.
Since the supply chains of most business are currently filled, it will be weeks or even months before the lack of parts or products will impact on sales.
In a bit of irony, Trump’s trade policies may mitigate the problem a bit. Since he imposed tariffs on China, many companies have moved manufacturing and sourcing to other nations.
As a side note, it is interesting that Democrats are lamenting the impact of the stock market decline on all those working-class folks who have retirement accounts and 401Ks – after saying for more than three years that those very same folks were not benefiting from the increase in stock prices.
All things considered, America should get to the other side of the coronavirus in good shape – as we did with the Ebola epidemic. For America, it is more of an economic problem than a health problem. That does not mean that it is NOT a health problem that needs to be addressed but that Coronavirus will impact far fewer people than the drop in economic growth.
Like the disease itself, we are lucky that it struck when we were economically strong as opposed to weak and vulnerable. Even with the impact of Coronavirus, America still has the strongest and most stable economy in the world.
So, there ‘tis.
Article By Larry Horist