The Great Stock Market Implosion of February 5th





       On February 5th, 2018, the Dow Jones Industrial Average dropped 1175 points, before recovering roughly 300 points on February 6th. This drop represented the largest single-day point drop in stock market history, although the paltry 4.6% drop in terms of percentage pales in comparison to Black Monday of 1987. Still, the drop was extremely alarming, with the XIV index nearly being wiped out in a 90% drop.
      Given the size and strength of the 10-year bull market which lasted from 2009-2018, such a correction was to be expected, although few expected a slide as large as the one on February 5th. On the inverse side, volatility indexes such as VIX and TVIX skyrocketed on Monday, before crashing down to Earth on Tuesday. The main question investors now face is whether this slide will continue in the form of a full-on crash, or whether it will reverse rapidly. Of course, while Tuesday's rally was impressive, it still could indicate a potential bullish trap, where potential buyers are duped by an upswing which proceeds a huge slide.
     Economic fundamentals remain quite strong. While there are some fears surrounding inflation, as well as relative uncertainty with regards to a new Federal Reserve chair, these are minor negatives in the face of a rather strong economy - both in the United States and globally. Economic statistics indicate that the US GDP is rising by roughly 3% annually, while unemployment is very low at 4.1%. This strong trend has been going on since 2009, where Obama's stimulus programs and Federal Reserve quantitative easing kick-started the economy from the depths of 2009. Out of all potential threats to the economy, the greatest is probably the 1.5 trillion dollar student loan bubble, as most college students simply cannot repay their massive amount of student debt.
    What should the average citizen make of the crash? Nothing. Even if the stock market drops another 5000 points, a full-on recession is extremely unlikely given the current trend of the economy. However, investors should be wary, and possibly pursue various hedges such as gold or an inverse fund. 

Comments

Popular Posts