The stock markets continued their sickening freefall on Friday, dragging the Dow down nearly 531 points and into dreaded “correction” territory.
Here’s the funny part — and by “funny” I mean nauseatingly odd: stock prices really aren’t down that much.
The Dow Jones Industrial Average and the rest of the major indices are now around 10 percent below the all-time highs they reached in May.
That is certainly an impressive drop, but in the olden days — before the Federal Reserve made manufacturing financial bubbles its top priority — stock prices would need to decline by 20 percent or more before anyone even started talking about a correction.
To put that into perspective, the Dow Jones Industrial Average would need to drop another 1,700 points or so before we’d even be having this discussion.
And corrections don’t necessarily stop at 20 percent. So a 30 percent drop in stock prices — imagine losing one-third of your portfolio! — isn’t out of the question.
Now, the news of a 10 percent “correction” is being treated as it if were an earthquake near a major US city. We’ll be flying flags at half-staff when stocks decline 20 percent — and, if history is any indication, that is going to happen one of these days.
Stock prices got to that 10 percent level — and then some — on Friday when the Dow Jones Industrial Average declined by 530.94 points to close at 16,459.75. That’s a 3.12 percent loss for the day.
That culminated in the worst week for the Dow since 2008, when the financial crisis was in full swing.
The fact that this was one of those highly volatile option expiration periods during a lightly traded summer period didn’t make Friday any easier.
In fact, there was no telling what was going to happen at the end of trading when stocks suddenly went to their lows for the day.
Not to be outdone on Friday by the Dow, the Standard & Poor’s 500 index lost 3.19 percent, or 64.84 points, to close at 1,970.89 and the Nasdaq index of technology darlings dropped 3.52 percent or 171.45 points to close at 4,706.04.
It would be easy to explain why the stock market is tanking if there were any credible chance that the Fed would be raising interest rates in September.
But there isn’t — not with China starting a currency war, the US economy sputtering, corporate profits listless, Greece still in tatters and even the slightest possibility that Donald Trump could become president.
Nope, if the pattern of the last few years held, Wall Street would be thrilled right now that the Fed’s hands and feet are tied.
Not only can’t the Fed use its hands to crank out more money, since its “quantitative easing” monetary printing experiment was a bust, but the central bank can’t even flee the scene of the crime and pretend this isn’t its fight.
Suddenly, Wall Street sees bad news as bad. And with the Fed out of the way, there’s no silver lining.