We have been saying for a while now on these pages to watch your portfolio and position your investments for a possible significant downturn in the markets. Today we have a several hundred point slide in the Dow Jones Industrial Average, a two plus percent drop.
In my opinion, this correction is long overdue and could be just getting started. The equity markets have been held up artificially for years, now by an interventionist Federal Reserve that has been actively involved in the financial markets as a willing buyer to support different asset classes and keep interest rates low in order for the United States to support her enormous sovereign debt load.
Recently, the Fed has been hinting they will start to withdraw this sugar high soon. But there are a myriad of reasons why the stock markets are down substantially today. The Jewish holiday, geopolitical events, Russia passing a law to seize foreign assets, the war in the Levant, the dog ate my homework, et cetera, are all valid hypothesis. In other words, the markets have been looking for any reason to sell-off from their top heavy position.
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In addition to being a large daily percentage loss, the markets also saw broad, heavy selling today across all sectors. This suggests that the correction is a risk off trade across the board and not just a take down of one part of the market where the rest follows suit to some extent.
Perhaps the markets are worried they don’t know what they don’t know. We are coming into the weekend and traders most likely don’t want to run the risk of holding positions for a few days where they couldn’t get out if something happens geopolitically. Events abroad are just too scary.
In any event, make sure you are protected on the down side, and wait until a crescendo of selling until you tip toe back in the markets. This could be the big one.
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Photo Credit: Scott Beale (Flickr)
The views expressed in this opinion article are solely those of their author and are not necessarily either shared or endorsed by the owners of this website.
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