The Dow Jones Industrial Average lost 1,175.21 points Monday — its biggest point loss ever — and has lost almost 8 percent of its value the past few bloody days.
The S&P 500 and Nasdaq are likewise down 7 percent and 6.68 percent the past five days, according to CNNMoney.
Asian markets were also down big Monday and Dow futures were pointing to potentially another 1,000-point loss Tuesday, according to CNBC.
So what should investors look for going forward?
University of Arizona finance professor and stock market expert Christopher Lamoureux said U.S. stocks have essentially given back their gains from early December.
“We’ve erased the gains for the last several weeks,” Lamoureux said of Monday’s bearish close. “We’re back where we where on December 8 of 2017.”
The Dow is still up 21 percent the past 12 months. The S&P 500 is up 15 percent and the Nasdaq 23 percent the past 12 months, according to CNN Money.
Lamoureux said he felt stock prices were getting a bit too frothy (a precursor to a bubble) and concerns about rising interest rates and inflation are driving the big-time stock sell-offs.
The University of Arizona finance expert said he’s looking at U.S. Treasury and bond yields as an inverse indicator to stocks.
Lamoureux points to recent rises in 10-year Treasury yields and 30-year bonds.
“I always look to fixed income, the yield curve, inflation,” he said.
Bonds haven’t even been on the radar for most investors, brokers and traders with very low interest rates. But interest rates are climbing. That improves the return on yields (U.S. government debt) and bonds.
Higher interest rates have started to worry investors about the cost of money to borrow and spend. That, coupled with increased concerns about inflation via increased wages and job gains, have resulted in money moving out of stocks and a bearish pullback by investors.
Lamoureux isn’t a optimistic about tax cuts passed by President Donald Trump and Congress helping stocks or even GDP growth.
“Will companies do more or just keep the profits that they make?” Lamoureux asked.
Trump has touted the tax cuts as helping with jobs and GDP gains.
A number of economists agree saying they could take GDP growth to 4 percent and give a much-needed boost to wages.
The tax cuts trim corporate rates from 35 percent to 21 percent and give companies such as Apple (Nasdaq: AAPL) a one-time 15 percent rate on money they back from foreign tax shelters.
The likes of Apple, Walmart Inc. (Nasdaq: WMT), Starbucks (Nasdaq: SBUX), Walt Disney Co. (NYSE: DIS), Wells Fargo (Nasdaq: WFC), JPMorgan Chase (NYSE: JPM) and Best Buy (NYSE: BBY) have given bonuses or raises from their tax cut windfall.
The UA stock expert said, however, the tax cuts increase inflation risks and up government debt. Those both work against stock prices. Lamoureux still isn’t sure how the current market correction is going to pan out and whether it will be more of an orderly adjustment or cause some more widespread psychological sell-offs.
This article was originally written by Mike Sunnucks of the Phoenix Business Journal and can be found here.