Historic Drop Primes Wall Street For More Loss

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wall street historic drop

On Tuesday, the Dow Jones Industrial Average was on track to for a lower open adding to the prior two days of losses. This has raised concerns among investors that the U.S. stock market’s nearly decade-long rally is coming to an end.

On Monday, both the S&P 500 and the Dow lost over 4 percent their biggest falls since August 2011, as fears of rising U.S. interest rates and government bond yields reached record-high valuations of stocks.

Analysts remained guarded on predicting that the decline, which erased $4 trillion off global share values, is nothing more than a sizable correction to the nearly ten-year rally seen since the 08-09 financial crisis.

“The one thing I could say with confidence is that volatility has suddenly come back into the market,” said Andre Bakhos, managing director at an investment firm. “The declines in markets are steep and vicious and are fostering a feeling of fear which begets irrational behavior. So this market is now driven on fear of rates and wages. That basically means good news now is bad news.”

By 8:11 a.m. EST: Dow e-minis were down 232 points, or 0.97 percent, with 200,003 contracts traded. S&P 500 e-minis were down 13.75 points, or 0.53 percent, with 1,173,713 contracts traded. Nasdaq 100 e-minis were down 25.75 points, or 0.4 percent, on volume of 207,522 contracts.

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Wall Street’s plunge triggered fear across financial markets around the world. Europe’s main bourses lost around 2 percent while Japan’s Nikkei fell 4.7 percent, its worst fall since November 2016.

“The catalyst for the biggest U.S. equity sell-off for six years is being blamed on a delayed realization that inflation pressures are rising perhaps more quickly than anticipated,” said James Knightley, economist at a Dutch bank. “As such, this appears to be more of a ‘healthy’ correction rather than the start of a broader re-evaluation for earnings.”

Since 2009, the continuous growth in the values of U.S. shares has been propelled by the loose monetary policies of the world’s major central banks and recently by President Donald Trump’s corporate tax cuts.

On Monday, benchmark 10-year note yields rose to 2.885 percent, the highest since January 2014 before falling back to 2.707 percent as the stock selloff quickened. They were at 2.75 percent on Tuesday.

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