Topline
Major U.S. stock indexes closed a volatile Monday trading session at their lowest prices in months, as markets globally exhibit fear.
Monday was dreary for long stock investors.
Key Facts
The bellwether S&P 500 and tech-concentrated Nasdaq Composite ended Monday at their lowest respective levels since early May, while the narrower, 30-company Dow Jones Industrial Average closed at its weakest price since mid-June.
That comes after the indexes all tumbled: The S&P’s 3% decline made Monday its worst day since September 2022, the Nasdaq’s 3.4% fall was its biggest drop since July 24 and the Dow’s 2.6% dip was its steepest since September 2022 (the Dow’s 1,033-point fall is also its steepest point loss since 2022).
Notably, the CBOE Volatility Index (VIX), known as Wall Street’s fear gauge, spiked to its highest closing level Monday since October 2020, at the beginning of that year’s sharp stock selloff, indicating there is major angst among traders about the direction of stock prices.
“It will take some time for markets to work through this period of uncertainty and volatility,” predicted Darrell Cronk, Wells Fargo Investment Institute’s chief investment officer, in a note to clients, largely attributing the selloff to the “unwinding” of leveraged trades in which groups borrowed money in Japan to fund purchases of stocks outside of Japan as the country’s central bank moves off of its decades-long policy of near-zero interest rates.
The Nasdaq fell further in the 10% correction territory it first entered Friday, now down 13.1% from its July 10 closing high, while the less tech-exposed Dow and S&P still sit just outside of a correction, with the Dow down 6.1% from its July 17 peak and the S&P down 8.5% from its July 16 high.
Crucial Quote
“Things are ripe with negativity,” observed Harris Financial Group’s managing partner Jamie Cox in emailed comments. Other than the more obvious dismay drivers like the decline of the “carry trade” originating in Japan and a slumping U.S. labor market, Cox pointed to the global currency market’s volatility, central bank uncertainty, escalating violence in the Middle East and a turbulent U.S. presidential election cycle as catalysts of negative sentiment among investors.
Big Number
$3.5 trillion. That’s how much market capitalization the 500 companies on the S&P lost Monday, according to FactSet data.
What We Don’t Know
What it will take to stop the bleeding in the equity market. “A sustained market recovery needs a catalyst, or likely a combination of catalysts, including stabilization of the Japanese yen, strong earnings numbers, and solid economic data releases,” wrote Seema Shah, Principal Asset Management’s chief global strategist, in emailed comments. The selloff is “going to have to stop on its own with the winding down and ultimate exhaustion of levered trades,” according to Cronk, hinting at the potential for further near-term losses.
Further Reading
Trump Media to the Saudi Arabian influence on golf and what real-life billionaires think of ” Succession.” Send tips to dsaul@forbes.com. Follow Saul for analysis on the biggest daily economic and stock market happenings, ranging from inflation data to tech earnings to deep-dives on hot button assets.
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