Yesterday the stock market experienced one of the worst days of the year. The Dow Jones Industrial Average fell 832 points, more than 3%, the biggest lost since eight months ago on February 8. The S&P 500 dropped 3.3% to 2785.68. But the biggest losing major index was the Nasdaq Composite, which tumbled 4.1% to 7422.05, its biggest single day decrease since June 2016.
The losses were widespread. Company that have been the biggest winners on Wall Street for most of the year suffered the steepest declines. Technology stocks such as Apple and Amazon, the two most valuable companies in the S&P 500, each had their worst day in the last two and a half years. Together, the FAANG companies — Facebook, Amazon, Apple, Netflix, and Google — lost a collective $172 billion in value. It seems to be that larger companies were hit the hardest. The Russell 2000 index of smaller-company stocks shed 46 points, or 2.9 percent, which is relatively less impactful.
Usually when the market tumbles so dramatically we can pinpoint a reason or two. The main culprits this time are the fear of higher interest rates and the overhang from the U.S. trade dispute with China.
Increasing interest rates too fast quickly can push investors to sell stocks and buy bonds instead. Although the yield on the 10-year Treasury declined toward the end of the day, its jump from 3.05 per cent early last week to more than 3.20 per cent yesterday has spooked investors. The yield was just 2.82 per cent in last August, and it’s now at a seven year high. Despite this the market expects the Federal Reserve to continue raising interest rates over the next few quarters.
President Trump reiterated those concerns telling reporters after landing in Erie, Pennsylvania, for a campaign rally that he believes the Fed “is making a mistake” with its campaign of rate increases. “I think the Fed has gone crazy,” he said. At the same time, Trump called Wednesday’s market plunge “a correction we’ve been waiting for for a long time.” Being in a trade war with China also doesn’t help the market since many technology companies in the U.S. have overseas revenue.
