The Dow and the S&P are both down almost 2% for the day. What do you blame? Ebola? ISIS? Global economic slowdown?
The Dow plunged as much as 460 points Wednesday afternoon before pulling back a bit, although a 370 point loss isn’t anything to cheer. There wasn’t an obvious trigger. Ebola and Europe’s sour economy are clearly worrying. Earnings have been so-so, and retail sales data out this morning was disappointing.
But if you’re keeping an eye on the numbers, here are three critical stats to watch. There is no “magic number” that triggers a sell-off, but these indicators would be big red flags.
We’re near a correction, but not there yet
Only a month ago, the S&P 500 index closed at an all-time high of 2,011. At its worst point Wednesday morning, the index was down around 9.5% since then. That’s rough, but it’s not quite the 10% drop that would constitute a true correction, let alone the 20% drop that would signal a bear market.
Keep an eye on this number: 1,810. If the S&P 500 slips below that, we’re in a correction. As of Wednesday afternoon, the S&P is hovering around 1,830.
Investors are putting money into bonds. It’s debatable whether it’s a ‘freak out’
When investors get scared, they don’t run to mom, they run to bonds, especially U.S. government bonds. The yield on the 10-year Treasury is a good indicator of just how many people are seeking the safe arms of the bond market.
When the yield falls, you know people are gobbling up bonds.
In the middle of September, the yield on the 10-year Treasury was around 2.6%. On Tuesday it was at 2.2%. That’s a quick drop, but the real indicator of a meltdown would be for the yield to drop to 2% or even below.
Sure enough, on Wednesday, the yield fell below that mark several times, although it is on track to close just above the 2% mark.
The last time that happened was in 2012 when Europe was in the midst of a debt crisis and America’s economic recovery was looking uncertain.
Market jitters are back, but we’re not quite at a “correction” yet.
The numbers change constantly, naturally, and they’ve moderated somewhat since I started this post.
I told you to enjoy this “recovery” while it lasted; you’ve had it since June of ’09, making this past the sixth Recovery Summer. What more do you want? Jobs? Then you elected the wrong guy, twice. Three hundred point dips in the DJIA are your reward.