The Dow Jones Industrial Average plunged over 665 points today. That equates to a loss of 2.54%. Today’s sell-off ends the longest streak on record without a three percent correction. The drop was sharp, and broad-based. Every sector in the S&P 500 was down today, with about 95% of stocks in the index falling. Energy and tech took the biggest hits.
Market pundits attributed the losses to rising bond yields, which were up again today as employment and wage gains exceeded expectations. So, what was good for the economy was apparently not good for the stock market.
The TINA market (there is no alternative to stocks) that has persisted for years has left many investors exposed. With bond yields up, investor calculus on where to turn for return may be shifting.
Today’s plunge has assuredly rattled some cages, but don’t let it rattle yours. A correction has been long overdue. On average, we see one 10% correction per year and 2-3 5% corrections. We have seen neither since 2016. The Dow is down only 4.12% from its high. If the market falls 10% from its high, that would bring the Dow to about 24,000. The November 29th close on the Dow was 23,940. Stocks have obviously come a long way in a short amount of time.
That’s not to say that any correction will be limited to 10%. Most stocks are still far from cheap. But if you invest with the balanced approach, as we have long advised on this site, there is no reason to panic. The diversification of a balanced portfolio is a soothing tonic that allows retired investors and those approaching retirement to sleep soundly at night.
Jeremy Jones, CFA
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