Last week we saw the Dow formally enter correction territory, meaning the market dropped by more than 10%. This is what markets do: they go up, until the herd feels like its time to take some profit off the table and sell, and then they go down. And then back up again.
This correction is not like others we’ve seen – it was/is driven by a specific fear, namely the Coronavirus’ effect on world economies.
COVID-19, as it is formally known, has now shown up in Florida. As I write this, there have been 2 U.S. deaths. These have occurred in vulnerable, sickly people. From the CDC website, the symptoms are mild to severe respiratory illness, with fever, cough, and shortness of breath. Many patients get pneumonia in both lungs. The statistics coming out of China are unreliable. It seems that most people who get the virus recover from it....
By Glenn J. Downing, CFP®
I’m sure you’ve heard the term before: asset bubble. Sounds ominous, because a bubble is generally something that’s going to pop. On the other hand, I think of bubbles with champagne. So there are two images, both conjuring up a party that has to end at some time.
What does the term refer to in terms of market valuations? It means simply that at some point assets will be trading at a price that’s too high, and that the price will come down – maybe gradually, or maybe by a pop. Why is there so much in the financial literature today about asset bubbles? Because there appears to be a big asset bubble in the making.
Before I go on, let me define two terms: