The media’s preoccupation with China’s slowing economy is the crucible for a stock market correction, but it’s not the whole answer.
Until today, stocks’ decline was about in line with the 5% to 7% declines that happen every calendar year for no particularly good reason, but today the Dow cracked into official ‘correction’ territory at -10%. Of course, the market has been bearish for months now; it just hasn’t shown up in the market averages until the last few days. When Intel and Oracle are down double digits, and Apple and Facebook are up double digits, there’s something fishy going on.
Everyone wants to know why, of course. We can blame China, but the reality is that valuations for a select few stocks are on the very high side especially in light of mediocre revenue growth, and those high valuations make stocks vulnerable. The trigger for the correction could have been almost anything, but China is handy, especially since its market is vaporizing in a much bigger way. How does a 60% decline feel? Be Chinese and you’ll know.
And there isn’t much other good news to counter the China threat, either. Two weeks ago when Apple said, ‘well, we had great earnings but China looks soft’, and the stock lost a swift 10 points, opinions about stocks – what was good and bad, what should be at what price – changed. We are in the midst of that change now.