The Dow was down 832 points yesterday, or over 3 percent – with the technology sector leading the market down, as the NASDAQ was off over 4 percent. The good news is the VIX futures are a bit muted on this big move – and the U.S. economy is stronger than ever with no recession in sight. For those investors who may have forgotten – this is what a market decline feels like.
The three biggest drivers of this correction seem to be interest rates, trade wars and Hurricane Michael. It was really a perfect storm yesterday. And the clouds may not be clearing yet – the market could not hold positive territory earlier in the day and the VIX is approaching 25, signs that lower prices are very possible. The question is whether the market retreat deepens or whether traders turn into buyers after the dip – the approach that has buttressed the stock market for months.
Bonds have pulled back off their lows today, but interest rates have been driving the markets for the past week. Since higher rates could slow economic growth, investors seem less eager to pay high prices for equities.
Of course, insurance companies and reinsurers also took a hit yesterday as the monster storm Michael hit the Florida Panhandle. We will probably see the aftermath of that storm factored into the markets for several weeks.
The best thing to do right now is not panic, breathe deeply and keep an eye on the VIX while looking out for some good values in tech, energy and consumer goods.