The Dow Jones had an extremely volatile week, experiencing 4% swings in a matter of hours, and ending down about 4.5%. This marked the Dow’s worst week since January of 2016. However, the market has not been consistently bearish, but rather, extremely unpredictable. On Friday, the Dow was trading near 23,300 points. Within 30 minutes, a surge brought the index up 700 points, allowing it to close in the positive. The markets began their downfall on February 2nd, when the Dow dropped 666 points. Then, a flash crash took place on Monday of last week, with the Dow suffering its worst single-day point decline in history. Other indices worldwide, including the S&P 500, followed the movement of the Dow. The S&P 500 fell far below its 50-day moving average, a technical indicator for a bearish market. The index is slightly above its 200-day moving average.
A sudden and sharp decline such as this is often referred to as a “correction”, meaning that the market is correcting previously over-valued prices. The correction occurred in relation to news of higher interest rates.
While the stock market may be down, the overall economy is nothing to be ashamed of. Unemployment is steadily declining, with currently at around 4% unemployment. Wage growth is up, largely due to the short-term effects of the Tax Cuts and Jobs Act, the recently passed Republican Tax Bill. The GDP is also continuing its upward trend and is currently around $18.5 trillion. So, overall, the economy is great, but it appears the stock market was still overvalued and collapsed onto itself.