A Scary October For Stocks.

by
Julio Gonzalez, M.D., J.D.
 
October is traditionally a scary month in Wall Street, and this October was no exception when the markets took a tumble to the tune of an over 1000 points loss last week, or about 4%.  More specifically,the Dow dropped from 26,340.57 on October 9 to 25025.07 on October 11 with Friday seeing a small increase in the close. 
 
Now, the question in everyone's mind is what will the Dow do next?  It is a question of great import, not only for investors, but also for political observers who mull the implications of the market's performance on the midterm elections.  
 
The issue is resonating even with President Donald Trump as he took to the airwaves to question the wisdom of the actions of the Federal Reserve.  For Trump, the market sell-off was a direct result of an excessively aggressive increase in interest rates by the Feds.
 
In point of fact, and despite the media's recent obsession with the sell off, last week's events do not likely represent the beginning of a massive downturn in the market.  For one, the salutatory effects of the Republicans’ tax reduction have been too great.  Further, economic growth is 3% versus one year ago, and the unemployment rate is at a 49 year low of 3.7%.  In the meantime, inflation is 2%, a relatively healthy position.  And the return on 10-year Treasury notes is 3.1% and on an upward trend, all of which tend to point to a robust, resilient market. 
 
Of course, all sorts of developments may steer the market southward.  The Asian markets are taking a beating, particularly, China's, which is down 30% from February.  Moreover, America's economic growth could stop. Inflation could spiral up under the effects of America's tariffs and the competitiveness of our labor markets.  And of course, any unforeseen development in the world stage could throw everything off. 
 
But in reality the American economy is in about as strong a position as it could be at this point in our history.  
 
Regardless, this week will be interesting from the economic side, as 55 major companies will be releasing their earning reports. By far, the most significant day of the week is tomorrow when, among others, Netflix will be reporting.  If anything, these reports may provide some insight as to the personality of the final quarter of 2018.  
 
Either way, the worst thing an investor or political observer can do at this point is read too much into last week's events. The wisest approach here, as is the case in so many other circumstances, is to stay the course and keep a watchful eye.
 
 
Dr. Julio Gonzalez is an orthopaedic surgeon and lawyer living in Venice, Florida. He is the author of The Federalist Pages and serves in the Florida House of Representatives. He can be reached through www.thefederalistpages.com to arrange a lecture or book signing.