The stock market crash this week that occurred five years ago this Sunday marks a solemn anniversary for U.S. stock markets.
Subprime financial crisis-related events would ultimately become responsible for five out of the top ten biggest single-day Dow Jones Industrial Average stock market crashes, including the top two spots.
After the Dow Jones hit an (at the time) all-time high on Oct. 9, 2007, at 14,164.43, it would fall by more than 50% to 6,594.44 by March 5, 2009 – a little under 18 months later.
U.S. markets hit their lowest point in the crash on March 9, 2009; the 5-year anniversary of that low point is this Sunday.
Since that day, U.S. markets have skyrocketed. The S&P 500 Index is up 174.7% (1,193.85 points), the Dow Jones Industrial Average has posted a 148.35% gain (9,830.98 points), and the Nasdaq is up 235% (3,040.5).
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In fact, as of this week, the bull market – defined as a period in which the S&P 500 gains 20% or more – ranks as the sixth longest since 1928, according to Bespoke Investment Group research.
However, the longer this rally lasts, the greater the anxiety there will be a stock market crash, or at least an official stock market correction – defined as a decline of 10% or more.
"I am very concerned about a correction right now," Money Morning Chief Financial Strategist Keith Fitz-Gerald said on Friday. "The past few weeks have seen higher prices and lower volume. This is like climbing a mountain into thin air – every step higher gets harder. Sooner or later, the markets are going to have to take a breather and turn around."
Here are the three signs that have investors worried we're due for a stock market crash or correction soon…
HERDING AND MARKETS
Speaking of lower volume in recent weeks, Facebook's last gap up to $64/hare from the low $50's in late January right after its earnings announcement was carried higher by less volume than in late July, the first time it began to recover back to its 2012 IPO price levels. FB stock moved much higher on higher earnings and growth in mobile advertising revenue but on lower volume. I noticed it at the time, but until now, nobody else seemed ready to make a comment about this development. Most pundits wait until there already is a consensus with either their peers or the public before stating a (existing) trend in motion.
As the saying goes: " Its way better to be wrong but in agreement with the majority (crowd) than right but alone". This tendency alone goes a long way in explaining market behavior. Therefore, we tend to experience waves of of momentum up or down and consequent volatility.