How Deep Can This Stock Market Correction Go?

The Stock Market Sell-Off Gains Momentum

If you are asking the question, how deep can this stock market correction go, the real simple answer is all the way to the bottom. It is incredibly unlikely that the correction will take the S&P 500 (NYSEARCA: SPY) to a valuation of $0 but it is highly likely will see a technical correction that could go as deep as 20% or 25% from the last all-time high. More if the market corrects all the way back to what was a very significant, secular grade uptrend line. Our point? There are a growing number of factors weighing on the market that ultimately can and will lead to a reset of valuation for the S&P500. 

stock market correction, (NYSEARCA: SPY), inflation is a big risk, a dramatic slowdown contributor/ – MarketBeat

The Biggest Risk For The S&P 500

The biggest headline in the news right now is the impending default of Evergrande but that is only one brick in the wall of worry confronting the market today. Evergrande is a Chinese real estate developer with over $300 billion in debt that it may soon default on. That is an absolute risk for China and could possibly cause a domino effect by spilling over into other economies.

Underlying everything else is interest rate risk from the Fed. The FOMC is hosting its September policy meeting and is expected to deliver a hawkish surprise to the market. The Fed is not expected to alter its policy but the trend in data supports the idea that tapering should start soon if not already be underway. 

And inflation is a big risk for the market in more ways than one because inflation is underpinning the earnings growth outlook. The S&P 500 are producing organic growth but they’re also producing top and bottom-line growth that is the direct result of price increases meant to battle inflation. At the moment, the balance of companies has been able to offset the pace of their own rising costs and widen their margins but that could change very soon. Regardless, no few companies have reported significant impacts to their bottom-line results from higher input costs, wages, and freight.

It’s Also About The Supply Chain

The root cause of inflation, the root causes, are many but include Fuel and Freight. Not only are fuel costs rising but there is a shortage of freight capacity throughout the system that has been persisting for years and not really showing signs of change. While the truckers and shipping companies have been able to lure in some new workers the demand for capacity is outpacing that and it’s costing them dearly. Not only are the shippers missing out on business but they are having to pay more wages and higher incentives and retention bonuses which is amplifying the already rising cost of shipping goods.

And then there is the supply chain angle of the freight issue. Not only is there a shortage of some vital supplies including and perhaps most notably semiconductors, but it’s also hard for businesses to get what they need when they need it. This is impacting top-line revenues in the near term but leading to higher backlogs which should sustain activity longer-term. 

The bottom line is that the S&P 500 has a lot of headwinds in terms of revenue growth and earnings growth. The market was already faced with a dramatic slowdown in year-over-year growth due to the overlapping of tough comps in last year’s calendar third quarter. If the expectations and consensus estimates for third and fourth-quarter growth begin to recede the market could be in for a very hard landing indeed. 

The Technical Outlook: The S&P 500 Will Fall At Least 5%

The S&P 500 have already exceeded -3% in this correction and look like it will easily reach -5% before hitting firm support. The recent price action has the index accelerating a move below the uptrend line and the short-term moving average which is now pointing lower. The indicators are bearish and convergent with the decline so we would expect to see price action at least retest today’s low if not exceed it at some point in the future. 

Price action may stabilize over the next day or two but, unless there is some much-needed good news, we see the sell-off continuing lower to at least the 4095 level. Longer-term, we expect to see the index move sideways and consolidate near the 4995 level before making its next big move. If the outlook for earnings continues to deteriorate, we could see the index complete a larger pattern and actually reverse course. In this scenario, the index could move down to the long-term secular uptrend line good for a decline of 36%.

stock market correction, (NYSEARCA: SPY), inflation is a big risk, a dramatic slowdown

Internet Explorer Channel Network
News Related


KB Financial Group Q3 net profit up 9.3% to W1.3tr

A logo of KB Financial GroupKB Financial Group Inc. on Thursday reported its third-quarter net profit of 1.3 trillion won ($1.1 billion), up 9.3 percent from a year earlier. The ... Read more »

Lawmaker questions official housing price projection

Rep. Yoo Gyeong-joon of the main opposition People Power Party speaks during an inspection of the Gwangju Regional Tax Office by the National Assembly’s strategy and finance committee at the ... Read more »

An Edtech Startup Taking Digital Entrepreneurship To New Heights

In a world where hardships exist at every point in life, dreams can feel like they are getting out of grasp. Every individual starts her path, keeping a goal as ... Read more »

The Influencer Marketing Industry Takes Its Next Evolutionary Leap

In New York City, the social scene is ingrained into the culture of the city. As a global destination for many professionals, New York attracts newcomers not just from a ... Read more »

BankID is down Thursday morning due to change of supplier

BankID is down on Thursday due to a change of supplier. The downtime was supposed to last until 8 AM but was extended. The service will probably be up again ... Read more »

Venture capital firms circle London tech scale-ups as financial injections hit record £20bn

© Provided by City AM A record high of over £6.5bn was invested by venture capital firms in UK scaleups over the summer, taking the total amount to £20bn so ... Read more »

8 in 10 young Koreans invest in stocks, crypto to buy home: data

A graph shows trends in young Koreans’ investing. (Richanco)Eight out of 10 young Koreans are currently investing in stocks, funds, cryptocurrencies and other assets, and their main purpose behind making ... Read more »

Barclays profit gets boost from deal-making, following Wall Street's lead

Barclays headquarters in London, England.Justin Solomon | CNBC Barclays reported better-than-expected third-quarter profits on Thursday, following its Wall Street rivals in receiving a significant boost from its investment banking division. ... Read more »

The hydra-headed monster that wants to gatecrash your retirement party

Fixed deposits or FDs, the play-safe savings investment bet for many Indians, now fetch a negative return due to high inflation. That is, the interest you earn on your FD ... Read more »

Watch CNBC's Sustainable Future Forum Asia: Money & Investing

[The stream is slated to start at 2 a.m. ET. Please refresh the page if you do not see a player above at that time.] Click on the stream above ... Read more »

Shinhan Bank opens Hungary office

A Shinhan Bank Hungary office employee poses for a photo in front of the Hungarian National Bank in Budapest with a sign marking the opening of the Korean bank’s office ... Read more »

What you need to know about heat pumps: We answer ten top questions, from their cost, to replacing gas heating and getting £5,000 grants

© Provided by This Is Money MailOnline logo Gas boilers are out and heat pumps are in. That was the message delivered by Prime Minister Boris Johnson this week as ... Read more »

Number of chickens dips 4.2% in Q3 due to bird flu

(Yonhap)SEJONG — The number of layer chickens raised in South Korea dropped 4.2 percent in the third quarter from a year earlier due to the impact of the bird flu ... Read more »

China Evergrande shares briefly plunge more than 10%, after $2.6 billion asset sale falls through

China Evergrande Group started returning a small portion of the money owed to buyers of its investment products, weeks after people protested against missed payments at its Shenzhen headquarters, pictured ... Read more »

Revenue-Based Financing: The New Kid On the Block

India’s startup ecosystem is evolving as we speak, with newer business models coming to fore every day. To match up to the pace of innovation, the business of venture funding ... Read more »

Former Virgin Galactic Test Pilot Heads to Blue Origin

Mark “Forger” Stucky was the lead test pilot for Richard Branson’s Virgin Galactic for six years and piloted the first flight on the company’s SpaceShipTwo, which reached the edge of ... Read more »

7-Foot-Tall Harambe Gorilla Statue Stares Down Wall Street's Charging Bull Amid 10,000 Bananas

A 7-foot-tall bronze statue of Harambe the gorilla appeared opposite Wall Street‘s “Charging Bull” on Monday, garnering in-person crowds and leading many retail investors, who often refer to themselves as “apes,”  ... Read more »

Shipping Containers From Stranded Ships Abandoned in California Neighborhoods

Shipping containers stranded for weeks at sea are now reportedly being abandoned in California neighborhoods. Anaheim Street in Los Angeles has become one of the locations where an overflow of empty containers now line ... Read more »

Zillow to Stop Buying New Homes for the Rest of the Year as It Struggles to Manage Backlog in Renovations

Online real estate marketplace Zillow on Monday announced it will stop buying new homes for the rest of the year due to a backlog in renovations and operational capacity constraints. The company’s ... Read more »

Viral Video Exposes How One Luxury Fashion Company Destroys Unwanted Merchandise

Luxury fashion company Coach has been in hot water over the past week after a TikToker exposed its practices for disposing of unwanted goods. Edward Berthelot | Getty Images Under the username ... Read more »

Reliance Retail Acquires Majority Stake In Ritu Kumar's Brand

Reliance Retail Ventures Ltd (RRVL) on Tuesday acquired an additional 35 per cent equity stake in popular labels of Ritu Kumar. Ritika Pvt Ltd owns Ritu Kumar, Label Ritu Kumar, ... Read more »

Tom Brady, Gisele Bündchen Cause a Frenzy with 'Trade' Tease Tweets -- But It's Not What Fans Think

A well-executed play, coming from one of the best in the league. Kevin C. Cox | Getty Images Seven-time Super Bowl champion quarterback Tom Brady and his wife, supermodel Gisele ... Read more »

Netflix CEO Says He 'Screwed Up' Response to Employee Anger Over Dave Chappelle Special

Netflix co-CEO Ted Sarandos said he “screwed up” communicating with his staff after they expressed displeasure with Dave Chappelle’s new streaming comedy special, The Closer. Employees are planning a walkout ... Read more »

Gautam Adani Meets UK PM, Assures To Commit $70 billion to Energy Transition

Business tycoon, Gautam Adani on Tuesday, met United Kingdom(UK) Prime Minister Boris Johnson at the Global Investment Summit. The Adani Group chairman said he will commit $70 billion towards Energy ... Read more »

An Ant Colony Is the Perfect Metaphor for the Economy. Here's What Else You Need to Know.

Ants are fascinating creatures. Far more than a simple picnic pest or inspiring hero moving a rubber tree plant, ants are complex creatures that demonstrate the value of teamwork, networks ... Read more »

So You Want To Be an Angel Investor? The Issue Is Exit

Arvind Khaalibaithnewala shifted his considerable bulk on the sofa and absent-mindedly flipped channels on his television. Known as Khaali to his friends, he was in his fifties and had recently ... Read more »

Facebook Expected to Reveal Its Secret New Name

Next week, Facebook may forgo its household name.  KIRILL KUDRYAVTSEV | Getty Images According to a report posted by the Verge on October 19, the social media behemoth is planning to rebrand ... Read more »

Latest: FBI Confirms Items Belonging to Brian Laundrie, Human Remains Found in Florida Park

Update 4:37 P.M.: In a press conference held in Florida, the FBI confirmed that there were in fact human remains found in the Myakkahatchee Creek Environmental Park on Wednesday morning. Octavio Jones | ... Read more »

Green mortgages 'could be next cladding scandal', MPs warn

© Provided by Daily Mail MailOnline logo Millions of homeowners could be trapped in unsellable houses if the Government presses ahead with a green mortgage scheme, MPs warned last night. They ... Read more »

CredAble Raises $30 Mn Series B Funding Led By Plutus Wealth And Oaks Asset Management

CredAble, an AI-powered technology platform enabling working capital financing across enterprise ecosystems using state-of-the-art technology, digital KYC and onboarding, deep ERP, and bank integrations, on Wednesday announced to have raised $30 ... Read more »

MarketWolf Secures $5.5 Mn Seed Funding

MarketWolf, an innovative ‘intra-day options only’ trading app recently announced to have raised $5.5 million in a fresh round of seed funding largely from high profile individual investors who hold ... Read more »

Consumer Foods Brand Yu Raises $ 1 Mn

Yu, a consumer brand that is re-imagining consumer packaged foods with their 100 per cent natural instant meal bowls, has secured $1 million funding. The round saw participation from Manish ... Read more »

Skyber Raises INR 40 Lakh

Skyber, a SaaS and B2B commerce-based platform, recently raised INR 40 lakh in one round of investment through the Encubay Angel Network, a women-led and women-focused angel network. Apart from ... Read more »

CVB Financial (CVBF) Beats Q3 Earnings Estimates

CVB Financial (CVBF) came out with quarterly earnings of $0.37 per share, beating the Zacks Consensus Estimate of $0.36 per share. This compares to earnings of $0.35 per share a ... Read more »

Covenant Logistics (CVLG) Q3 Earnings and Revenues Beat Estimates

Covenant Logistics (CVLG) came out with quarterly earnings of $1.02 per share, beating the Zacks Consensus Estimate of $1 per share. This compares to earnings of $0.56 per share a ... Read more »

Kaiser Aluminum (KALU) Misses Q3 Earnings and Revenue Estimates

Kaiser Aluminum (KALU) came out with quarterly earnings of $0.57 per share, missing the Zacks Consensus Estimate of $1.10 per share. This compares to earnings of $0.33 per share a ... Read more »

UFP Industries (UFPI) Beats Q3 Earnings and Revenue Estimates

UFP Industries (UFPI) came out with quarterly earnings of $1.93 per share, beating the Zacks Consensus Estimate of $1.55 per share. This compares to earnings of $1.25 per share a ... Read more »

Sea Limited Sponsored ADR (SE) Stock Sinks As Market Gains: What You Should Know

Sea Limited Sponsored ADR (SE) closed at $360.60 in the latest trading session, marking a -1.74% move from the prior day. This change lagged the S&P 500’s daily gain of ... Read more »

How to Get the Top Best Buy Black Friday 2021 Deals

NerdWallet is here to help you win Black Friday, while leaving your budget intact. We spend the time, you save the money. Visit regularly for holiday shopping tips and announcements ... Read more »
On you will find lots of free English exam practice materials to help you improve your English skills: grammar, listening, reading, writing, ielts, toeic