Monday, 20 October 2014

Stocks could fall another 50 percent or more

Do stocks have much further to fall? The Wall Street Journal's Brett Arends asks that question.

Despite Friday’s boomlet, the Dow Jones Industrial Average still closed the week down 1%, and the broader S&P 500-stock index ended also down 1%. The Dow and the S&P are down 5.2% and 6.2%, respectively, from their record highs...

Overall, the MSCI World index has fallen 10% in just a few short weeks, after hitting a record on Sept. 2...

So how much further might the market fall?

If this is merely a regular correction in the course of a regular economic expansion, the answer may be: Not much further.

Corrections of 5% to 20% are a normal part of the stock market...

Still, there are reasons for concern based on trends prevailing even before the recent turmoil.

If the global economy were turning upward, the prices of industrial commodities, such as copper and oil, would typically have been rising. Instead they were falling.

Meanwhile, if the future were rosy, long-term interest rates, a barometer of economic growth, would have been expected to go up. Instead, they have been tumbling. (The yield on 30-year Treasury bonds dipped below 3% amid last week’s market turmoil, and yields on the benchmark 10-year note were at mid-2013 levels.)

And some analysts have become quite bearish.

While the majority of big names on Wall Street still officially see the market ending the year higher, unofficially more and more are wondering if the long-awaited correction is at hand...

To these critics, stock prices could easily fall 50% from current levels, and could conceivably fare even worse...

The gloomiest prognosticator, Scottish stock-market historian and analyst Russell Napier, suggests that Wall Street might yet fall by 75% or more before the carnage is over.

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