It’s been a bloody day for the U.S. stock market. Major indices closed significantly lower, sending shockwaves through the financial system. Quickly, the S&P 500 Index, a common benchmark for U.S. equities, finished at 5580. It suffered a loss of 112 points, or the equivalent of a 2% decrease. This was matched by the Dow Jones Industrial Average, which was down 715 points or 1.7%. The tech-laden Nasdaq Composite took an even sharper dive, losing 480 points or 2.7%.
Investors were left reeling as the Russell 2000 Index tumbled to close 42 points, or 2% lower. On the same day, the Dow Jones Transportation Average was down 291 points, or over 2%. The Equal Weight S&P Index was down too, down 106 points or 1.5%. The Mag 7, a megacap titans group of tech stocks, was the most affected, losing 825 points or 3.5%.
The bond market showed a change in mood. The yield on the most closely watched two-year U.S. Treasury note fell to 3.84%, falling sharply from 4% at this time last week. In the same vein, the ten-year Treasury yield moved down to 4.19% from last week’s 4.33%. This shift in yields reflects investors’ heightened demand for safer assets during periods of market distress.
News today from Goldman Sachs analysts that the Fed will make three interest rate cuts this year. They plan for these changes to be made in July, September, November. This forecast has continued to fuel the overall market jitters as traders try to clear a path through this treacherous landscape littered with volatility.
Currency markets saw their own challenges, with the EUR/USD pair trading in a tight range above 1.0800 on Monday. This absence of remarkable momentum in currency trading reflects the deeper market’s risk-averse mindset.
The University of Michigan’s recent survey numbers acted as a catalyst for algorithmic trading systems, triggering a selling frenzy that exacerbated the day’s market losses. The S&P and ISM Manufacturing PMI composite indicates that the S&P 500 Index is on a trajectory toward very modest contraction. This piece of news was discouraging to investors.
“Reversion to the mean is the iron rule of the financial markets.” – John Bogle
As a result, the financial community is still split on what these developments mean. Some investors are taking a wait-and-see approach, while others approach this historic downturn as an opportunity for strategic entry.
“Be greedy when others are fearful and fearful when others are greedy.” – Uncle Warren (Buffett)