The stock market is having a panic attack. The Dow is down almost 1,800 points (7 percent) in two days. CNBC has already dubbed it "selling hell."
So what is going on? And how much should you worry? Let's unpack what you need to know if you are someone who invests in stocks and bonds for the long-term and mostly tries to forget about the daily turbulence.
Wall Street was overdue for a "reality check."
The Dow was up over 26 percent from January 2017 to January 2018. That's a massive jump in one year. Historically, the stock market has gained 8 percent, on average, in a year. We just experienced three times that amount. Investors were beginning to look around and question whether stocks really should be at such high levels.
It's not a true correction yet.
For all the alarming headlines, this isn't a true correction yet. A correction is defined as a 10 percent drop from the prior market peak. On Wall Street, it's the equivalent of giving someone a time out. It may seem hard to remember now, but the Dow was sitting at an all-time high on January 26, just over a week ago. At the moment, the Dow is down 8.5 percent from that record level. So it's close to a correction, but not there yet. (The S & P 500 is down about 7 percent from its prior record level).
Ed Yardeni, a longtime stock market analyst, points out that the current bull market has been going since March 2009. In all these years, we've had four official corrections, so not many, but we have also had 60 "panic attacks," as Yardeni likes to call them. Those are periods where the market dipped and people predicted the worst, but we didn't even end up in a true correction!"You can't make too much out of a couple of days of craziness," says Ed Yardeni, president of Yardeni Research. "I believe this, too, shall pass."