Dow’s big dip: Starting today, we’re watching

After the worst weekly stock market drop in two years, investors shaken by the end of a long period of market calm will kick off a new week on Monday bracing for more turbulence.

Stocks were slammed last week as the broad market plunged 3.9%. The free fall snapped the S&P 500 stock index’s longest stretch ever without suffering a 3% dip from a high.

Friday’s sell-off in the U.S. and Europe spread to Asia at the start of trading Monday, with shares down more than 2% in Japan and Hong Kong.

The return of wild market swings was a stark reminder to investors that stocks don’t just go up. Last week’s turmoil could be a signal that a correction — a 10% drop — market skeptics have warned about might have begun, many money managers, economists and finance professors say.

“The timing is uncertain, but a correction is coming,” says Sung Won Sohn, a professor at California State

University-Channel Islands.

Periodic market drops usually occur roughly once a year. They are viewed as healthy because they clean out froth, or overly exuberant investment.

The U.S. financial market hasn’t suffered a 5% drop from its peak, or pullback, since June 2016, when England’s Brexit vote to leave the European Union shocked investors.

The rockiness on Wall Street was set in motion by fears that the recordlow interest rates that have powered stocks and the economy for nearly nine years may be ending as the economy and job market gain strength.

Nick Sargen, chief investment officer at Fort Washington Investment Advisors, doesn’t see the swoon morphing into a full-fledged bear market, or

20% drop. That’s mainly because business conditions remain strong and “the risk of recession is low,” he says.

Wall Street pros say there are a few signals they will assess to gauge how long the downturn could last:

❚ The bond market. Last week, data showing wage growth for hourly workers rose at the fastest pace since

2009 caused a sell-off in bonds, pushing the yield on the 10-year Treasury above 2.85%, its highest level in four years. If the climb tops 3%, that could cause more market angst.

“It’s a bit of a psychological level that we haven’t broken through since late 2013,” Sargen says.

❚ The stock market. What investors and consumers think the market will do and what it actually does are different things. Before making any rash decisions, keep emotions in check and see how things play out in the coming days, says Lindsey Bell, investment strategist at New Yorkbased investment research firm CFRA.

“Wait to see how the market reacts on Monday,” she says.

Also keep an eye on key levels of major stock indexes that market pros watch. Mark Arbeter, who heads Arbeter Investments, says the market dip presents a buying opportunity. After last week’s fall, the S&P 500, which closed at 2762 Friday, is close to the 2750 level that he has been targeting as his “first buy area.”

❚ The economy. Business around the world remains strong and should continue to give investors a reason to invest in stocks once the rough patch passes, says Thorne Perkin, president of Papamarkou Wellner Asset Management in New York: “Strong earnings, government stimulus and a broadly improving global economy will bolster the equity case and keep prices moving higher.”