Correction Continues, Focus On The Fed At Home, Slowing Growth Abroad
As I mentioned yesterday morning, the nearest support level for the S&P would be found at 2,532 (February's reactionary lows). That was hit late in the day, getting as low as 2,530, before closing at 2,545. I would imagine we'll see a bit of a bounce from there. But that level is likely to be tested again.
If that were to fall, next support comes in at 2,417 (the gap left on the chart from September 8th, 2017). That would be another -5.06% lower from yesterday's close, putting the correction total at -17.81%. (A similar correction like we saw back in 2016 before it surged to new highs.)
If the market fell to those levels, I would anticipate major buying to come in at those prices.
So what's driving the market?
The U.S-China trade rift is the main culprit.
That's weighing on China's economy and world markets.
But we're also seeing slower growth in Europe and other countries.
A trade deal with China should immediately unburden the market. And a stronger China would invariably mean stronger economies for their trading partners as well, which includes the U.S.
The U.S. is already the economic envy of the entire world. But without one, the economic slowdown we're seeing in other parts of the world is causing concern for today's connected marketplace.
I expect all of this to be over soon as the U.S. and China appear headed for a deal. But the deadline isn't until February 28th. And that's a lot of time for the market to worry and speculate.
Meantime, we still have the Fed's interest rate decision on Wednesday, and the looming government shutdown on Friday. Those two events have gripped the market and caused additional volatility.
But market challenges notwithstanding, there's great opportunity in these pullbacks.
As Warren Buffett once said, 'be fearful when others are greedy and greedy when others are fearful.'
Fear has clearly overtaken the market. But with the market likely within a handful of percentage points from what could be the correction lows, now is the time to start thinking about what you're going to buy. Because when the market does start heading back up, you don't want to be kicking yourself for missing such a spectacular buying opportunity.
If you wish you would?ve played the correction earlier this year better than you did, now is your chance with this one.
See you tomorrow,
Kevin Matras
Executive Vice President, Zacks Investment Research
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