The stock markets continue to get whipsawed.
All the major US indices closed down about 3% for the week.
This action follows the previous week’s wild ride when stocks started deep in the red, the Dow plummeted 1,089 points (before recovering), and somehow, ultimately both the S&P and Dow closed 0.6% and 0.8% higher for the week, respectively.
People who are invested in the stock market might not want to hear this, but we could be in the midst of a stock market crash.
(For what it’s worth, the fact that there’s a small chance of something happening doesn’t mean that it’s not worth acknowledging and thinking about the possibility that it could happen.)
Generally, when people think about the tech and credit bubbles in the stock market, they tend to visualise a single crazy stock plunge that just keeps going and going in one direction: down.
When stock market bubbles come to a head, however, they tend make wild swings. In other words, they don’t just suddenly burst — it’s more of a wild up-and-down process.
In a January note to clients, UBS strategist Julian Emanuel zoomed into the stock market action during the previous two major market peaks to illustrate this important observation.
For what it’s worth, this is what the stock market has looked like over the past three weeks.
(We must point out, however, that Emanuel’s charts are over longer time frames.)
It is important to emphasise that these three charts do not predict a crash.
Rather, it is merely interesting to point out the recent volatility in the markets is not without precedent. After all, it is extremely difficult for investors and economists to tell whether the market is in a bubble and, furthermore, whether that bubble is bursting.
But given the recent volatility, one can’t help wondering whether the stock market is crashing. It will be a while, however, before we confirm whether that is actually happening.
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