1. The Worst Week For US Stock Markets Since 2008
2. Confluence of Negative Factors Became Important
3. The Falling US Dollar Suddenly Became a Problem
4. Conclusions: Where Do We Go From Here??

Overview

Last week’s carnage in the US stock markets was one of the worst meltdowns I have witnessed in my 40+ years in the investment business. Most US stock indexes plunged over 10% in value from Friday, February 2 to the lows on Friday, February 9 – complete with two days where the Dow Jones Industrial Average lost over 1,000 points in one session.

While I warned in my Blog on January 11 and my E-Letter on January 16 that US stocks were extremely overvalued, and that the next correction – which could happen at any time – would likely be very serious, even I didn’t foresee daily market plunges of 1,000+ point declines in the Dow.

In my January 16 E-Letter, I reprinted an article from Dan Lyons which pointed out that investor allocations to stocks were the highest since 2000. Mr. Lyons pointed out that much of this money in the stock market came in late in the game, and he predicted the next market correction could be “severe.” I agreed with him.

Having just been through one of the worst weeks in stock market history, I will offer some thoughts today on the convergence of factors that led to the latest stock market implosion. Let me admit upfront that I don’t know if the downturn is over, no one does, but hopefully the analysis below will help you understand what has just happened.

The Worst Week For US Stock Markets Since 2008

Last week was a stunner for most investors. The plunge actually began on Friday, February 2 when the Dow shed 666 points on the day. The Dow proceeded to fall a record 1175 points on Monday. That put the DJIA down from above 26,000 on February 1 to 24,346 at Monday’s close.

The Dow rallied on Tuesday of last week by 567 points, only to fall on Wednesday and plunge another 1,033 points by the close on Thursday. The market was sharply lower again on Friday in early trading but managed to close up just over 300 points by the end of the day.

DJIA

It was the worst week for US stocks since 2008 during the Great Recession and financial crisis. As of the close on Thursday, the Dow was down 8.75% for February, the S&P 500 was down 8.60% and the NASDAQ was down 8.56% for the month. At the intra-day lows, all three indexes had lost over 10%.