|Why has the stock market dropped more than 10% for the first time in almost two years?
And why is the 9 year old bull market about to end?
There are the reasons given by the financial media and the otherwise mainstream media; however, these are not necessarily the real reason.
Let’s take a look at what’s REALLY going on…
Reason #1 is concern about the Federal Reserve increasing interest rates more rapidly and more frequently than originally thought due to the burgeoning economic growth brought about by optimism around Trump’s economic initiatives.
So while it’s good that the economy is going to grow more strongly, that’s also a signal to the Federal Reserve to raise rates beyond what was originally intended. And when rates go up it makes it more difficult for stocks to go up.
|Reason #2 is the expected Trump tariffs on steel and aluminum which actually came to pass.
Since tariffs are widely viewed as dramatically slowing international trade and therefore acting as a brake on the economy, Trump’s tariffs rattled the markets.
But of course, then it became obvious to anyone who understands Trump, that he was simply using tariffs as an opening negotiating chip, principally with China to a halt the Chinese abuse of American trade policy for the past 25 years.
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Reason #3 is the Omnibus bill that was passed by the House and Senate and signed into law by the President.
This allowed the government to keep spending money they don’t have, adding to the national debt at an ever-increasing rate, which also rattled the markets.
Plus, there were a few other reasons for this recent market crash, such as the North Korean threat, the latest revelation on Russia collusion which is always then retracted without facts, the resignation of certain Trump cabinet officers, and the list goes on.
I believe the real reason the market dropped 10% is because it went up in January in parabolic fashion from an already strong bull run that began after Trump was elected.
When the market goes up in parabolic fashion, it always comes down just as quickly as it went up. So, you could argue that that’s the real reason for the decline.
This bull market is getting long in the tooth, and after such a dramatic rise was overdue for at least a 10% correction and that’s what occurred.
From here, after testing the February 9th low a few times, the market now looks like it wants to rally for least a couple of weeks and it may even go all the way up to test all-time highs in the next couple of months. But it seems unlikely it can go higher, so at some point soon we will see the end of the multi-year bull market and the beginning of a new bear market.
But don’t let that worry you – as always, there will be plenty of trading and investing opportunities in the coming bear market.