The selloff continued in Europe, with the Stoxx Europe 600 index on track for its worst day since 2022.
Traders, fearing that the Federal Reserve has waited too long to cut interest rates and that the economy is in a downturn, flocked to the safety of U.S. government debt.
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Wall Street is suddenly rethinking upbeat views on the economy, and that’s causing pain for the vast majority of S&P 500 stocks.
With the S&P 500 down 2.7%, roughly 480 of its members were set to decline on the day. All 11 S&P 500 sectors were down at least 1%, which would be the first time they’ve all closed down 1% or more since Nov. 2, 2022, according to Dow Jones Market Data.
The Dow was down 909 points, or 2.3% while the Nasdaq Composite was down 2.8%.
The Nasdaq entered correction territory last week, while the S&P 500 was roughly 100 points above the 5,100.48 level that would mark a correction, or a 10% drop from its July high.
“Corrections happen,” says David Donabedian, chief investment officer at CIBC Private Wealth US. “You rarely see exactly when they're coming or exactly why, but we still think that this is a bull market that will be sustained by the end of the inflation crisis and a more accommodating Fed.”
A slowing economy could create challenges for equities to achieve the kind of earnings growth that analysts were penciling in for the quarters ahead, he says. That said, Donabedian notes the latest pullback and surging volatility seem like an overreaction.
Donabedian points out that the S&P 500 averages roughly one and a half 10% drawdowns annually. With the market seeming to ignore signs of a slowing economy until last week, it makes sense that traders would rethink their risk asset allocations.
"This reaction in equity and fixed income markets is probably an overreaction, but somewhat guided by the fact that we were at lofty valuations for key parts of the market," Donabedian says. "And those are getting beat up the most."
DJIA
DJIA (Dow Jones Global)
S&P 500
SPX (S&P US)
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It’s bad out there, but it isn’t that bad.
The Nasdaq was off 3.5% in early trading Monday. That puts in the worst 2% of days over the past 30 years.
The worst day for the Nasdaq over the past 30 years was down 12.3% in March 2020. That was due to the Covid-19 pandemic.
The next two worst days were related to the dot.com bust of the 2000s. Those sent the index down 10%. Then the 2008 financial crisis led to the next two worst days, sending the index down 9%. The Long Term Capital Management hedge fund disaster of 1998 led to the sixth worst day of the past 30 years, sending the index down 8.6%.
The other event that catalyzed a big one-day drop was the European sovereign debt crisis of 2011.
30% of the Nasdaq’s largest drops happened on Monday. There is just something Mondays.
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