Bubble Burst or Only a Correction?

Another massive crash in the stock market this week raised the stakes in two major debates among stock index traders. Why is the market tumbling? Will this decline later prove to be a buying opportunity or have we formed a major top?

Some of the reasons posed to explain the down-turn include rising interest rates, weaker earnings, and global issues.

As the Federal Reserve raises interest rates, it could put the brakes on economic expansion and, especially, hurt the housing industry as prospective buyers won’t be able to afford higher interest mortgage payments and decide to stay put instead. This could ultimately hurt builders and lead to lower housing prices.

Meanwhile, stocks have been soaring for a long time, and a series of bad earnings figures from major corporations this week raised concerns that prices could fall sharply to reset stocks to a more normal value.

Finally, global issues including the conflict with Saudi Arabia and trade war with China have investors nervous about prospects for continued global growth that has helped support U.S. companies over the last decade.

As the market declines, a growing percentage of investors can become bearish and lighten up on their equity portfolio, either by selling stocks or selling short equity index futures contracts. Though this may not always be the wisest reaction, the decline can develop into a meltdown or longer-term panic selling.

**Hog Market Catches Fever

Pork prices neared a one-month high this week as concerns grew about the spread of Africa Swine Fever across China. The highly contagious, deadly disease has been found on over 40 different hog farms in China, sparking fears that the world’s biggest hog producer could run into a major pork shortage.

The disease is already widespread in Russia and has recently been found in Belgium. Quarantines are attempting to limit the movement of animals within China, and foreign countries are increasingly afraid of contracting the disease as well. This may increase demand for U.S. pork, as the United States has not had issues with the disease.

As a result, the global woes could bring profits to U.S. pig farmers who have been suffering from low prices for months amidst global trade wars and large domestic meat supplies. As of midday Friday, December hog futures were worth 57.5 cents per pound, up sharply from the recent lows under 44 cents.