What comes up must come down, but market watchers are getting whiplash

If you want to see what whiplash feels like, you don’t have to get rear-ended in a car crash or fall down a flight of stairs. Instead, you can just watch the stock market.

Let me explain. During the five-week period from August 29 through October 3, the four main market indicators – the Standard & Poor’s 500-stock index, the Dow industrials, the Nasdaq composite and the Wilshire 5000 – all hit their all-time highs. The market gods were showering money on investors.

Sure, interest rates were rising and there were signs of other problems. But optimism reigned. Stocks were going up and were gonna keep going up.

Until, suddenly, they weren’t. Soon after the Dow peaked on October 3, stocks started falling and kept on falling for weeks.


The major reason cited for the decline was . . . rising interest rates. Rates had been rising during the run-up – but never mind. Suddenly, rising rates – especially rising long-term rates – were being seen as a huge problem.

Donald Trump running his mouth in mid-October, blaming the Federal Reserve’s increases in short-term rates for the market decline, didn’t help things any. (I’ll spare you the explanation of why the Fed raising short rates probably helps the stock market by putting downward pressure on long rates. For details, consult your local market guru.)

By the time the markets closed on Halloween, the scary October drop had wiped out stocks’ gains for the year. Many investors felt haunted, so to speak. Fear reigned.

Talk of a “correction” was everywhere. For those of you who don’t speak stockmarket-ese, a “correction” (more later on that) is a drop of 10 per cent or more from a market peak. It’s a totally random measure, based on nothing scientific or financial.

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