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'Stock Trading Can Be Pretty Emotional': Understanding the Wall Street Decline When Things Were Going Good

02-05-2018

So what's going on on Wall Street? Stocks have been dropping like a rock the last few days. And everything had been looking so good. 

That's actually the problem- things had been looking too good. The market had gone up... and up... and up. One market analyst pointed out just last week that stocks had gone up without a five percent correction for more than 560 calendar days. That's the longest such stretch since 1945.

On top of that, stocks had really built up a head of steam through the first three weeks of January, moving up very high, very quickly.

In other words, stocks went up too high, too fast - and they had to come back to Earth. 

So the stock market was already overdue for a normal correction, and now we're getting it. In fact, even though we've seen what appear to be pretty dramatic drops - like the Dow down over a thousand points Monday- so far, this is a fairly normal correction. 
   
Stocks are likely to bounce back soon, but that doesn't mean they're going to start going straight up again right away. That's possible, but not necessarily probable.
   
Why do we get corrections? The stock market, throughout its long history, has never gone up, or down, in a straight line. Short- term traders get in, then they get out. Other investors get excited and push the market up, or they panic and push it down. In other words, stock trading can be pretty emotional.
  
 But for those keeping an eye on the longer- term, this shouldn't be much to be worried about. We had some tough corrections just a few years ago, in 2016 - and in the year preceding that as well. Last year, 2017, with its very smooth uptrend, was actually the exception to the rule.
  
 The bigger and much more important question is whether or not the bull market, with its rising stock prices, that began in 2009 is over. The answer is almost certainly no. And that would mean that once the market gets this correction out of its system, stocks will start moving higher again.
   
So for those more interested in the long-term, remember: the market came back from pretty severe corrections in the last few years, and it's likely to do so this time as well.

Drew Parkhill is the CBN News Financial Editor.

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