It is very easy to make a big deal about the recent decline of the Dow Jones industrial average and the NASDAQ. A lot of market analysts are making a big deal of the fact that the NASDAQ has lost over 2%. This is its biggest loss in close to a year.
Well, you have to look at things in context. The NASDAQ has been going crazy recently. It went over its 5,000 historical high point. It took 15 years to get to that point, and NASDAQ blew through that. Moreover, many NASDAQ component stocks are just going crazy. Put all these factors together and it shouldn’t be a surprise that the market goes down from time to time. Every party, regardless of how awesome it is, will encounter at least a bump or two down the road.
As people make money off the upward swing of the market, expect traders to look for any kind of sign to cash out. Apparently, traders got spooked by a potential weak profits data in the coming earnings cycle due to the strong dollar, and they cashed out – fair enough. The bigger question to ask is whether this downturn is just a hiccup or a big indicator that worst things are going to happen.
I tend to believe in the latter. Considering the fact that many big US companies are giving negative projections for the rest of the year, this is going to put a lot of downward pressure on the market on a sustainable basis. If you factor in the continued strength of the dollar, expect that negative outlook to continue for a long time. As long as Japan and Europe are trying to devalue their way out of their economic woes, the dollar will remain strong by comparison. This is going to put downward pressure on the stocks of American companies that do a lot of international trade.