Wednesday, March 22, 2017

US Stocks Set For 5% Correction -- Or Perhaps Something Far Worse

By Karen Gilchrist
March 22, 2017

U.S. equities are headed for a 5 percent drop – at least – after suffering their biggest falls since the election of President Donald Trump, says Dennis Gartman, editor and publisher of the Gartman Letter.

"This is the start of at least a 5 percent correction, and perhaps something far worse than that over time," Gartman told CNBC Wednesday, after markets began to doubt the president's pro-growth tax reform and stimulus policies during Tuesday's session.

U.S. markets led the declines, with the benchmark S&P 500 index tumbling 1.2 percent Tuesday — and breaking a run of 109 trading days without a drop of 1 percent or more. The Dow Jones industrial average and the Nasdaq also suffered their biggest slumps of the year.

"I take this very seriously," said Gartman, "This is not just a one off circumstance in the equities market."

Alongside equities, base metals and crude oil posted lows while gold and bonds broke out to the upside, suggesting a wider shift in capital markets.

"I think there's something to the downside that could be quite serious," Gartman said. "Let us hope it's merely a 5-7 percent correction and nothing more than that."

A correction indicates a shorter and smaller downturn than a bear market, which usually refers to falls of around 20 percent over a two month period, or a recession, which refers to a prolonged downturn. However, a correction can be a precursor for both. UBS also predicted a correction for stocks on Tuesday, saying the fall could be closer to 10 percent.

"We've been saying that we expect a 5 to 10 percent correction. We've been saying that for weeks now," Julian Emanuel, equity and derivatives strategist at UBS, wrote in an analyst note.

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