Stocks Closed Sharply Lower Yesterday, But Off Their Worst Levels Of The Day

Market Moves You Need to See Stocks Closed Sharply Lower Yesterday, But Off Their Worst Levels Of The Day [Kevin Matras - EVP - Photo] Profit from the Pros By Kevin Matras Executive Vice President Stocks Closed Sharply Lower Yesterday, But Off Their Worst Levels Of The Day Stocks closed sharply lower yesterday with the major indexes closing down by roughly 2.5% to 3%. But they managed to finish a fair amount off their lows, where some were down by more than 5% at their worst. The selling began in Japan where the Nikkei plunged more than 12%. Many are pointing to the Bank of Japan (BOJ) raising interest rates last week for only the second time in 17 years. The South Korean KOSPI was next shedding 8.8%. Panic set in across global markets and weighed on U.S. stocks when it was our turn. Adding to the unease were reports of expected retaliation by Iran against Israel and the U.S., and fears of a widening Middle-East conflict. But shortly after stocks put in their worst levels in the morning, they began to climb back up. It was still a rough day. But could have been much worse. BTW, Japan rebounded nicely the next day, gaining 8%. The headlines pointed to concerns over a slowing economy and worries about a recession. But I think talk of a recession is wildly premature. First, the decline that we're seeing is not that unusual. Stocks typically pull back roughly -5% on average of 3-4 times per year, and have a correction of about -10% on average of once a year. A 'pullback' is defined as a decline between -5% and -9.99%. And a 'correction' is a decline between -10% and -19.99%. From their recent high close just a few weeks ago, to their worst intraday levels on Monday, August 5th, the Dow pulled back by -6.55%, the S&P 500 pulled back by -9.67%, the Nasdaq corrected by -15.76%, the small-cap Russell 2000 corrected by -11.95%, and the mid-cap S&P 400 pulled back by -9.79%. As painful as pullbacks and corrections are, they are very common. Every bull market has them. And if you know these are commonplace moves, you can instead look at them as opportunities to buy rather than places to sell. As for a recession, it's difficult to make a case for a recession when the labor market and economy are still so strong. Granted, last week's jobs numbers were weaker than expected. But this is also what the Fed has been wanting to see -- that and slowing inflation, in order to cut rates, which now looks like there's a good chance of it happening in September, when they next meet (if not sooner). But the labor market is still adding jobs at a healthy pace. And the recent 4.3% unemployment rate is still historically low. Moreover, Q2's GDP came in above expectations at 2.8%. And Q3's GDP is forecast at 2.5%. Again, it's hard to make a case for a recession, which typically means two quarters in a row of negative GDP, when the GDP is up and outpacing expectations. Additionally, corporate earnings and sales are trending higher with Q3 earnings growth estimated at 5.5% and sales at 4.8%; Q4 earnings at 11.7% and sales at 5.4%; and Q1'25 earnings at 13.2% and sales at 5.5%. None of this even remotely spells recession. So, I think we are simply going thru a typical pullback and correction. Again, it's not fun while it's happening. But these are usually pauses that refresh. And savvy investors should be on the lookout for places to buy, before the next leg up. See you tomorrow, [Kevin Matras - Signature] Kevin Matras Executive Vice President, Zacks Investment Research Sponsor [FREE training: The day trading strategy behind Tr3ndy Jon's +80% win rate]( What if you could anticipate major market turns ... even in highly volatile conditions that appear "random"? How's that possible? The "Big Players" are behind the big moves, but most traders don't know how to read their order flow. 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