Was last week a preview of things to come? There are quite a few people out there that believe that the stock market would begin to decline in July, and that appears to be precisely what is happening. Last week, the Dow Jones Industrial Average (INDU) fell by more than 530 points. It was the biggest one week decline that we have seen so far in 2015, and some are suggesting that this could only be just the beginning. By just about any measurement that you might want to use, the stock market is overvalued. But we have been in this bubble for so long that many people have come to believe that this is “the new normal”. In fact, earlier today someone that I know dropped me a line and suggested that our financial overlords may be able to use the tools at their disposal to get this current bubble to persist indefinitely. Unfortunately, the truth is that no financial bubble ever lasts forever, and right now some very alarming things are starting to happen behind the scenes. Over the past couple of weeks, the smart money has been dumping stocks like crazy, and the lack of liquidity in the bond markets is beginning to become acute. Could it be possible that another great financial crisis is just around the corner?
Last week took a lot of investors by surprise. The following is how Zero Hedge summarized the carnage…
-Russell 2000 -3.1% – worst week since Oct 2014 (Bullard)
-Dow -2.8% – worst week since Dec 2014
-S&P -2.1% – worst week since Jan 2015
-Trannies -2.8% – worst week since Mar 2015
-Nasdaq -2.2% – worst week since Mar 2015
The talking heads on television were not quite sure what to make of this sudden downturn. On CNBC, analysts mainly blamed the usual suspects…
“I think the market's very much concerned about the commodity (decline),” said John Lonski, chief economist at Moody's. “The contraction in China manufacturing activity is gaining momentum and the credit market has yet to signal that rates are not about to go higher.”
He also noted a surprising decline in new home sales and continued lack of revenue growth in earnings. Nearly all the commodities are in a bear market and gold and crude settled at lows Friday.
“You've got some major growth concerns and that is what's weighing on investors minds,” said Peter Boockvar, chief market strategist at The Lindsey Group.
