What a ride for the stock markets. The TSX composite have dropped more than 1000 points over the last month. It has dropped almost 200 points today alone.
Is this a simple correction? If so what percentage correction are we looking at? 15% perhaps? Perhaps this is the precursor to a recession. The subprime mortgage brouhaha in US might be a larger factor than economists and analysts have been predicting. After all if some people are foreclosing on their mortgages, that puts more supply into a buyers market which exerts additional downward pressure on housing prices. As real estate prices continue to fall, other home owners might become concerned enough to cut back spending which might put the US economy into a recession. After all if Joe from work just lost his house because “interest rates are rising” there is no reason why it can’t happen to you.
Also other sectors and countries are already being affected by the subprime crisis. For example Potash Corp. which is a mining company dropped almost 6% as investors seem to be fleeing any kind of risk and taking profits where possible. Mortgage funds are also dropping drastically I would imagine.
So the final question is how long will the bear market continue? Is this a simple correction or a start of a longer term downward trend? I’m not too certain but I’m more inclined to think the latter. We have had a very strong market for a few years now and I think that we are due for some downward and sideways trading for a while yet.
Of course I would love to be proved wrong….
Update: Apparently we have entered a correction according to some with a 10% drop from the highs.