US stocked dropped 5.3% on the open with the Dow Industrials shedding 1089 points in 5 minutes. By mid day, the decline was a mere 0.9%. Many investors took that rally as the last opportunity to get out of stocks, so selling pressure returned in the after noon, leaving the major averages down 3.9% on the day, 9% over the last three sessions, down 6.8% on the year and down 11.3% from the record high set May 12th.
Officially a correction, but could this selloff become a bear market?
A correction is defined as a decline of 10% from a previous high; a bear market is a decline of 20% or more. We say, "no bear market." Bear markets result from:
- Highly over valued stocks, as we saw in 2000
- Severe bank stress caused by over leverage, as we saw in 2008-9.
Neither of these factors is significant right now.