After another week of losses for the US stock market, Henry Blodget at Business Insider wrote at the end of last week that this could be the start of a stock market crash.
[S]ome signs suggest that this pullback — or another one sometime soon — could get much more severe.
Why?
Three basic reasons:
• Stocks are still very expensive
• Corporate profit margins are at record highs, and
• The Fed is now tightening
However, responding to Blodget, James Gruber at Asia Confidential wrote that stocks will not crash for now.
Asia Confidential believes Blodget makes a number of valid arguments and could end up being right. But he’s way too early with the call. And the principal reason is that history shows Fed tightening has been bullish for stocks, at least initially.
Joshua Brown at The Reformed Broker had also asked at the end of last week: Is this the beginning of a crash?
His answer:
It certainly could be, but the odds do not favor it. Statistically speaking, it is far more likely that a run-of-the-mill correction is now underway and working its way through each sector of the market, to varying degrees of severity. Counter-trend rallies are sharp and short (think Wednesday), which is fairly characteristic of a defined downtrend. The 200-day moving average is rising up just beneath us and it may offer some solid support, just as it had in December of 2012.
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