Stocks are likely to take more of a beating, in what could be the first major shakeout of five percent or more in a year.
Worries about rising tensions between the U.S. and North Korea toppled a market that has been considered richly valued and too complacent. This week, a number of major financial firms, including Citigroup, Bank of America and Doubleline, all called for a late summer pull back, based on high valuation and the fact the Fed is about to reverse some of its easy policy.
Stock futures were lower Friday after the Dow tumbled 204 points Thursday to 21,844 in its worst trading day since May 17. The selloff comes after a series of new highs in a summer of low volatility. The S&P 500 fell 1.5 percent to 2438 Thursday, while the Nasdaq took the biggest hit, losing two percent to 6,216.
"The fact is it's very abnormal to go an entire year without a five percent correction, and we haven't had one since the top last August and a trade down to the day before the election. From that perspective, what we're telling people is if you measure your investment horizon in years, like most investors do, you just have to relax and expect to have a lower entry point to add to your equities holdings," said Julian Emanuel, equity and derivatives strategist at UBS. "If you measure your horizon in weeks, or months, you want to be a little more defensive here."
Emanuel said the S&P 500 could lose another 100 points or so before the selling ends. "Five percent gets you to 2375. The logical support point is the 200-day moving average, which we last touched on Election Day," he said. The 200-day was at 2337 on Thursday.