Dollars and Sense: The long-predicted stock market correction is here

Buckle up. Unless you’ve been on a desert island, you know last week was rough in the markets. Monday was a fair day, but Tuesday and Wednesday were down days. On Thursday, the Dow fell more than 350 points. And just when you thought that might be the worst of it, it fell another 500 points on Friday. That’s what you call a bad week. The sell-off continued this morning, with the Dow dropping 1,000 points in early trading.

No panic. But it’s important to note that while the sell-off has been deep and systematic, it has not been panicked. I was on Wall Street on Friday, and it was business as usual there. No technical glitches, no talk of closing the markets. Most analysts are saying this is the long overdue correction, and little more than that. While the drops of the past few days have been dramatic, the bigger picture is one of expansion for the past six years, a virtually unbroken record of stock market gains. It’s easy to forget such bull runs are extremely rare.

Reasons for the drop. That’s not to say we haven’t had months of warning, and a few precipitating events over the past week. A weak manufacturing report came out Monday. Walmart released a disappointing earnings report on Tuesday, and the company’s stock fell significantly—more than 3 percent—dragging down the markets that day. Oil prices remain at six-year lows, and that drove down energy stocks. The devaluation of the Chinese currency, the yuan, continues to have effects in the global markets. Disney stock fell 1.8 percent after Wells Fargo cut its rating on the stock and also on the stock of five other media companies, including CBS. So even Mickey Mouse got his ears clipped.

Not all bad news. You’d be tempted to worry if that was all the news we got, but it wasn’t. We saw a rise in homebuilder sentiment last week. In August, it rose to a near-decade high. July housing starts rose to a near eight-year high. Home Depot, another company whose fortunes are closely tied to the homebuilding industry, posted strong earnings. And it’s important to note that while earnings have been mediocre this quarter, we still saw modest growth and few negative surprises. With 92 percent of the S&P 500 companies reporting so far, second-quarter earnings are up 1.2 percent from a year ago.

The week ahead. We’ll get the August consumer confidence number tomorrow. That will tell us what most Americans are thinking, and that’s important because retail sales still drive about 70 percent of the U.S. economy. On Wednesday, we get the July durable goods report. That will give us a snapshot of how big-ticket items are selling, which also will tell us how core infrastructure industries such as manufacturing and transportation are doing.

What to do? I have been scrupulous not to give advice in this weekly column, but at such a time, perhaps a few words of sanity are in order. As I have said many times here: the markets go up, and the markets go down. It is the height of arrogance to believe you can time the markets. The best way to make money in the markets is to have a diversified portfolio and stay in over the long term, knowing your long-term strategy will help you weather the ups and downs. So, panic? No. Vigilance and diligence? Absolutely. And while I don’t give financial advice, I would offer this: Call the person you have trusted for your retirement account. Be patient. His or her phone is probably ringing off the hook today. Ask for advice, and if you trust that person, follow the advice. If you don’t trust that person, get a new advisor. Either way, read Philippians 4:6-7. Then get on with what God has called you to today.

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