It’s been a scary month on Wall Street, but Wednesday is the most hair-raising day yet.
The Dow plummeted as much as 460 points — its deepest tumble in more than three years. The Nasdaq fell so far that it actually dipped into “correction” territory at one point. That’s Wall Street jargon for a 10% drop from a previous high.
Stocks have bounced off their worst levels but remain deeply in the red. It got so ugly Wednesday that all of the stock market gains for 2014 have now been erased. Even the S&P 500 and the Nasdaq are close to zero or negative now.
What’s driving this freak out? Investors have been spooked by gloomy economic numbers, another health worker testing positive for Ebola, plummeting energy prices and continuing concerns about Federal Reserve policies.
“We have a really toxic cocktail of negatives” that are “conspiring to put pressure on the markets,” said Art Hogan, chief market strategist at Wunderlich Securities.
Fear continues to grip the stock market. This week CNNMoney’s Fear & Greed Index has tumbled to zero, indicating “extreme fear,” for the first time since 2011.
Investors are fleeing risky assets like stocks and rushing into U.S. government bonds, which are seen as safe havens during times of market stress. The yield on the 10-year Treasury broke below 2% on Wednesday for the first time since June 2013.
The worst hit stocks: The market has been jittery the past few weeks because Europe, especially Germany, isn’t doing well. But now there is concern about the U.S.
Retail sales unexpectedly shrank last month for the first time since January, according to a government report this morning. Retailers like Sears Holdin, Home Depot and J.C. Penney dropped sharply on the news.
Also a new report showed inflation at the producer level dipped for the first time in over a year. Shrinking prices are not a sign of a healthy economy.
“We [the U.S.] had been the one strondhold in the economic rough,” said Hogan.
American Airlines and Delta Airlines tumbled as word spread that the new Ebola patient flew the day before being diagnosed. Other travel stocks like Carnival cruise line and Hilton Worldwide were also being hit as investors fear further fallout.
Energy stocks continue to tumble, with crude oil nearly breaking below $80 a barrel on Wednesday. The steep drop in oil prices has alarmed some investors and hurt the energy sector, especially small-cap energy stocks.
We’re close to a correction: Many market watchers believe a correction (a 10% decline from previous high) is long overdue. Such a downward move could even be healthy because it could lure in buyers who have been waiting on the sidelines for cheaper prices.
“Now is actually an attractive entry point for many investors,” Merrill Lynch Wealth Management wrote in a note on Wednesday. “For investors who aren’t used to the feel of turbulence, it’s a reminder that this is the just fourth market pullback of 5% or more in two years (whereas the historical average is about three times a year).”
The S&P 500 hasn’t suffered a correction since the one that ended in October 2011. To put that in perspective, Hollywood has had time to churn out three different Xmen movies over that span.
The S&P 500 needs to close below 1,810.2 to be in correction territory, based on its September 18 closing high of 2,011.36. It traded as low as 1,820 on Wednesday.
If the Nasdaq closes below 4,138.37 — an area it broke through during early afternoon trading — it would officially be in a correction.
The Dow isn’t far off from that status either. The index needs to close below 15,551.77 to be in correction mode.
All three major indexes remain far from bear market status. That more serious condition indicates a 20% decline from a previous high. Wall Street hasn’t had a bear market since the financial crisis, though it came close during the last correction.
