Such a scenario can’t be completely ruled out
Don’t be surprised if stock markets stabilize or bounce back in the next couple of days. Markets are due at least a short-term rally after this week’s dramatic plunge. This usually happens after a sell-off, no matter what the next big move is going to be. It doesn’t mean anything.
But anyone who automatically assumes this is another easy “buying opportunity” is talking nonsense.
For the past couple of years, Wall Street’s perma-bulls have had it their way. They’ve been gloating openly as stocks went up and up and up, seemingly without pause.
It got to the point that those warning about valuations and danger signs had been mocked into silence — or were simply ignored.
Not now.
I don’t mean to be alarmist or to induce panic, but someone needs to tell the public that there is a plausible scenario in which the U.S. stock market now collapses by another 70% until the Dow Jones Industrial Average falls to about 5,000. The index tumbled more than 3% to 16,460 on Friday.
Dow 5,000? Really?
For 30 years, stock prices have been increasingly boosted by financial factors: collapsing interest rates and Federal Reserve manipulation, culminating most recently in ‘quantitative easing.’
I’m not predicting that will happen, but contrary to what the bulls tell you, it cannot be completely ruled out.
And even if that ranks as an outlier and a worst-case scenario, there are other, more likely scenarios where the Dow falls to somewhere between 10,000 and 12,000.
