“The seventh year of the bull market is off to a rocky start,” wrote the Associated Press on Tuesday. In summary:
- The Dow lost 333 points, or 1.9%, erasing its 2015 gains in its worst day of the year and biggest drop since October 9.
- The S&P 500 lost 35 points, or 1.7%, also erasing its 2015 gains.
- The Nasdaq lost 82 points, or 1.7%.
- The U.S. dollar hit a nearly 12-year high against the euro.
- European bond yields hit record lows.
Investors are worried about a possible interest rate hike by the Federal Reserve occurring as early as this summer, as well as the strong U.S. dollar. The stock market’s current bull run has depended largely on the Fed keeping interest rates low and pumping money into the economy through quantitative easing (QE). But with QE over and an interest rate hike likely on the horizon, the stock market could be in for a rude awakening.
The strong dollar, although it may sound like a good thing, actually hurts many American companies as it makes their products more expensive overseas. Therefore, a dollar that is too strong worries stock market investors. And an interest rate hike would likely make the dollar even stronger, so the two issues compound each other.
For perspective, although past performance is not indicative of future results, since the end of WWII we’ve seen 12 bull markets and only half of them have lasted five years or longer. This one is in its seventh year.
All of this has led many analysts to one conclusion: the stock market is overvalued, and the bull run is losing steam.
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