After the Tumble: What's Ahead for Stocks

Dreams die hard. And we know now that the U.S. stock market had been living a dream. Investors had convinced themselves that a strong U.S. economy, juiced by tax cuts and other fiscal stimulus, could offset higher interest rates, the impact of President Donald Trump’s tariffs, and slowing growth elsewhere around the world.

That had allowed the S&P 500 to return 11% during the first nine months of 2018, even as the remainder of the world’s stocks fell more than 5%.

All of that came crashing down this past week. The S&P 500 slumped 4.1% to 2767.13, while the Dow Jones Industrial Average tumbled 1107.06 points or 4.2%, to 25,339.99, and the Nasdaq Composite sank 3.7% to 7496.89. It took a confluence of events to finally wake investors up.

The alarms rang almost in unison. The yield on the 10-year Treasury note hit a seven-year high after Federal Reserve Chairman Jerome Powell said the federal-funds rate target could still go higher. Vice President Mike Pence gave a speech about China that made investors realize that tensions between the two nations might not be easing soon. And, allegations of China placing spy chips in tech products caused technology stocks to take it on the chin.

That might have been fine if the damage had been limited to tech, but fears about growth were added to the mix. On Tuesday, the International Monetary Fund cut its forecast for economic growth. Two industrial companies few usually pay attention to— PPG Industries (ticker: PPG), which makes paints and coatings, and Fastenal (FAST), an industrial distributor—highlighted a tariff-induced profit-margin squeeze. It was proof, at last, that the U.S. wouldn’t remain immune to the damages caused by tariffs.

“With margin pressures creeping

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