Why The Dow Is Falling So Dramatically
While many analysts are blaming the declines on the Chinese market and economic crash, that was just the trigger. However, you can’t have a trigger without a gun; and that gun has been in the making for quite some time now. In 2008 and 2009, during the worldwide economic crisis, the United States Federal Reserve reduced its interest rate to record lows. This would allow consumers to pay less money in interest and have more money to spend elsewhere; ultimately giving corporations a boost and stimulating the economy. When this happened, we knew that it wouldn’t last forever. In fact, no one expected rates to last this long! As soon as the US economy showed signs of improvements, rate hikes were expected, but that hasn’t happened since.
As a result of the low interest rates, risk in the market became much lower than under normal market conditions. Over time, this led to incredibly excessive risk taking; pushing valuations up quite a bit higher than they should have gone. Once the market finally started to meet resistance, all it took was a piece of straw to break the camel’s back and start massive declines.
Once the Chinese market crashed, US markets began to slide. However, that wasn’t the end of it. Since late 2014, the Federal Reserve has been talking about raising its interest rate. This would take money out of the US economy and make stocks even more risky; causing quite a bit of investor concerns and more declines.
Still, more issues were to come. At this point, the Federal Reserve is sending mixed signals. They say the economy is strengthening and nowhere near a crisis, but the maintenance of the low interest rate says otherwise. As a result, investors are concerned with the indecision the Fed is portraying; leading to even more declines.
How Long Are Declines Likely To Last?
To be honest, I don’t have an exact answer to this question. I don’t think anyone does. However, I can say that we’re not going to go to sleep tonight and wake up to an incredible market. The reality here is that the problems leading to the correction were long in the making; and it’s going to take quite a bit of time to fix. With that said, I’m expecting for declines to last at least over the next quarter to the next six months. From there, worldwide economic conditions, US economic conditions, and overall market sentiment will tell us more.
All Is Not Lost!
While the market is on a bit of a death spiral at the moment, all isn’t lost quite yet. In fact, the biotech industry is opening up quite a few opportunities. Here are a few stocks you may want to watch closely…
- MannKind Corporation (NASDAQ: MNKD) – MannKind suffered declines well before the market correction as a result of poor Afrezza sales. However, I don’t think that these declines are going to last much longer. In fact, MNKD has shown gains over the past two trading sessions while the Dow Jones Industrial Average continues to fall. The reality is that consumers are becoming more aware of Afrezza, insurance companies are starting to cover the insulin and perhaps more importantly, MNKD has more than Afrezza to offer down the road. As a result, the stock is finding some support in the market.
- Arrowhead Research Corp (NASDAQ: ARWR) – Arrowhead Research is having an incredible day in the market today as the result of analyst day; an event at which they have presented incredible data with regard to their hepatitis B treatment candidate, ARC-520. It’s my opinion that ARWR is likely to see more gains as ARC-520 proves to provide more events that will act as catalysts.
- Keryx Biopharmaceuticals (NASDAQ: KERX) – Finally, KERX offered positive news of its own today. The stock is currently trading up after receiving regulatory approval from the European Commission for Fexeric, the company’s drug designed to treat elevated serum phosphorus levels; a condition known as hyperphosphatemia that affects adults with chronic kidney disease.
What Do You Think?
How long do you think the Dow is going to realize declines? Also, do you know of any other gems in the market at the moment? Let us know your thoughts in the comments below!
[Image Courtesy of the New York Post]