If you want to see what a whiplash looks like, you don't have to get the back in a car collision or fall off a ladder. Instead, you can observe the stock market.
Let me explain. During the five-week period from August 29 to October 3, four key market indicators – the Standard & Poor's 500 stock index, Dow industry, Nasdaq composite and 5000 Wilshire – all reached all-time highs. Market gods showered investors.
Of course, interest rates increase and there are signs of other problems. But optimism remains in power. Stocks are rising and will continue to rise.
Until, suddenly, they don't. As soon as the Dow peaked on October 3, stocks began to fall and continued to fall for weeks.
The main reason cited for the decline. . . raising interest rates. Prices have increased during the preparation period – but it doesn't matter. Suddenly, a rise in interest rates – especially a rise in long-term interest rates – is seen as a big problem.
Donald Trump opened his mouth in mid-October, blaming the Federal Reserve's rise in short-term interest rates for the market decline, nothing helped. (I will give you an explanation of why the Fed raised short interest rates might help the stock market by putting down pressure on long-term interest rates. For details, consult your local market teacher.)
When the market closes on Halloween, the terrible October decline has erased the acquisition of shares for this year. Many investors feel haunted, so to speak. Fear reigns.
Talk about "correction" everywhere. Those of you who don't talk about the stock market – a "correction" (more about that) is a decrease of 10 percent or more from the top of the market. This is a completely random size, based on no scientific or financial.
Now, pay attention. According to data compiled by Wilshire Associates for me, all four main market indicators were "corrected" in October. The decline in peaks to lows ranged from 10.1 percent for the Dow to 14.6 percent for the Nasdaq.
I don't know about you, but as a major in English which is also a crank of grammar, a way of "correction" is used – or rather, misused – it bothers me. It's like hearing nails scratching on the board. (If the board is still there.)
"Correction," you see, is nothing more than a euphemism for "substantial price reductions." Market news in the latter part of October often includes the mention of various markets entering or leaving the "correction" area on a particular day or at a certain time – as if it was important in and of itself.
This is why I am very skeptical about this term. After a "correction" occurs, the stock price may be correct, right? So I answer this: If at any given time the Nasdaq composite is, say, 14 percent below high all the time and in "correction" mode, does that mean the current level is the right one? If yes, is the higher Nasdaq price previously a mistake? Sure, that's a rhetorical question – but a good one.
"I personally don't believe in these artificial correction points, but many markets do it," Wilshire Director Bob Waidsays. "So some of this might be a self-fulfilling prophecy."
Now, let's see what happened this month so far. Shares have increased since November began. Suddenly, the "correction" conversation was lost. Now, we are looking at a post-correction rally. Which is not called "error".
At Wednesday's market close, four market indicators rose between 3 and 4.3 percent. Total reversal in October.
You have seen many stories, of course, linking Wednesday's sharp rise in the market, which contributed most of November's rise to Tuesday's midterm election results.
But that doesn't make sense to me, given the results – Democrats take control of the House, Republicans are slightly expanding their margins in the Senate – pretty much what is being predicted.
However, in a world where people – especially people in and around the capital city of our country – are obsessed with months of midterms, it is natural to link everything to the results of the election. To get rid of the gender line, Mark Twain is old: For someone with a hammer, everything looks like a nail.
How do I explain why the market is so awkward? I think – but it can't prove – that many things are related to the fact that most of the stock transactions these days are not made up of people who trade with each other, but with computers that use algorithms to trade stocks back and forth at ultrahigh speeds.
As a result, when the stock rises, they tend to continue to rise. And when they go down, they tend to go down.
For everything I know, when you look at this, the sharp up-and-down-and-sharp-up market that we've seen for the past 10 weeks might come down again. Or go up at warp speed. Whiplash City, we are coming.