The Stock Market Rout: A Healthy Correction, Or The Start Of A Bear Market?

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Is a bear market beginning?

The stock market was pummeled in a two-day stretch from Oct. 10-11, with major indexes tumbling across the globe. This has led many investors to wonder if the much-anticipated beginning to the next bear market is underway. My answer? Probably not.

The recent downturn looks a lot more like the market correction that occurred in early February, following January’s peak in equities. Looking at market moves so far this month, stocks appear to be re-tracing—or walking back—some of the excessive gains from the third quarter. Case in point: U.S. large-cap equities, as measured by the S&P 500® Index, were up approximately 7.5% last quarter, and are now down roughly 6.5% in October. Likewise, global equities (as measured by the MSCI World Index) advanced roughly 5% in the third quarter, and have now retreated by roughly the same amount.

Essentially, we’re seeing the market re-thinking its excitement over the past few months, with investors now realizing that perhaps there’s more to be concerned about, especially in regard to the forward-looking economic outlook.

What drove the market plunge?

What factors behind the scenes may have led to this shift in thinking? Looking at the actual news from the week of Oct. 8, nothing, in particular, happened that should have triggered such a steep sell-off. For instance, the release of the U.S. Bureau of Labor Statistics’ Consumer Price Index (CPI) for September showed a 2.3% increase, year-over-year. While that was slightly below consensus expectations, it wasn’t enough to set off a firestorm of concern, he remarked.

In my mind, in order to really assess what happened in markets, it’s best to take a step back and look at things from a broader perspective. Last year was an extraordinary year for markets, he said, with stocks consistently churning upward. Ever since this year’s January high-water mark, in my opinion, a very different sort of market environment has set in, a push-and-pull between concerns about how high-interest rates will climb, when inflation will become a problem and whether trade tensions between the U.S., China and other countries will impact economic growth rates.