Could we be entering a correction phase in the stock market? If so, is it temporary or long-term?
Some analysts believe so.
The Dow Jones Industrial Average recently closed its worst week since October, and the futures market, which closely follows the Dow, fell 200 points as well.
Both Asia and Europe markets saw drops as high as 3.3%.
The VIX volatility index (or VIX) which measures market volatility, also spiked more than 16% reaching its highest point since May.
It seems as though we are breaking highs in all of the wrong metrics.
Much of the recent market volatility stems from the global uncertainty surrounding the efforts to fully recover from COVID’s impact, as well as the Federal Reserve’s recent comments to cut back on support.
In a recent CNBC article, economist Mark Zandi is sending a warning: brace for a significant market correction.
Zandi believes we may be headed for a 10 to 20% market correction that could take years to recover from.
The economist has been ringing the alarm on inflation for months.
“Inflation is going to be higher than it was pre-pandemic,” Zandi said.
“Instead of the Fed being a tailwind to stock prices and other asset values, it’s going to start becoming a headwind.”
In March, the Fed claimed that they saw no increase in rates coming until at least 2024. A few months later, they indicated that these rate hikes could now come as soon as 2023.
Many experts feel that we could see two rate hikes in 2023 alone. These factors have spooked Americans, thus causing a market sell-off.
The underlying question– could this be the beginning of a bear market? And is this a good time to invest in gold?
If rising inflation rates provide any hint to what that answer may be, then the fact that the Fed recently raised their inflation expectations from 2.4% to 3.4% in a month’s time may not be too reassuring.
Earlier this month, Billionaire ‘Bond King’ Jeff Gundlach warned about rising levels of debt in the US, stating that:
“The dollar going down. That’s the linchpin to everything, I believe. And so, that’s the thing that is the most important.”
“Ultimately, I think gold will go much higher as the dollar falls and commodities broadly have a further significant leg to the rally that began 15 months ago,” Gundlach said.
Last year, when the markets were tanking, the price of gold soared, sending it to break its all-time high price.