This week started with more selling around the globe. The US futures look like they are going to take on more losses today. It is a good time to start to panic and wonder if there is more to this than a simple consolidation. The strength of the individual investor is that they have time and it should be used. So lets looks over a few shorter term theories that could be the start of a larger trend that would require action.
Consolidation: Markets have had a spectacular 2017 with December and January of this year seeing nearly in-stoppable gains each day the market was open. Markets were past due for a correction and this has occurred all at once. Despite the news coverage these losses takes the market back to the beginning of December of last year. Too many people running for the door could overshoot the selloff and we will eventually find a balance and start the focus back on the data.
Bond Yields/dollar: The equity market notices the bond markets were starting to price in more inflation and higher rates in the future. A declining dollar also stoked the fears of more inflation in the US as the economy progresses. With the Equity market not accounting for as much of a rate increase from higher inflation and a stronger economy it would makes sense there would have to be a value adjustment to reflect the future that is seen in bond market yields.
Total collapse: The end is truly here and losses are mounting everywhere (look at the VIX). Listen to the news 20 hours a day to get the best understanding of how bad it really it. Constant negative reinforcement will provide the insight needed to make sure you hold on till the lowest possible moment to sell.
Paying attention is important and knowing when to sell can help pare losses, but the key is to understand why the market is behaving the way it is and determining then if portions of your assets are ripe for selling. Times like this, when the VIX is this high, almost all assets are being sold off, which is more a time to start to look for key assets to buy as the market continues to panic. Emotionally counterintuitive, but in time a more desirable play in the long run.