By
Steve Muchoki
April 16th, 2024
High market volatility has ensued just before the Fed meeting this week. concerns of slow economic growth are dragging the market to the downside.
It has been a brutal start to the week for Wall Street investors. On Monday, September 20 Dow Jones and the S&P 500 corrected over 1.7% each registering their biggest single-day drop since May 2021.
The Dow Jones Industrial Average (INDEXDJX: .DJI) tanked over 600 points closing under 34,000 levels. Similarly, the S&P 500 tanked 75 points closing 4,357 levels. Both these indices are already more than 7% down so far this month.
If we look at Monday’s trading pattern, both Dow Jones and S&P 500 bounced back from the intraday drop during the last trading hour. Let’s take look at some of the key factors influencing market volatility.
Key Factors Behind Market Sell-Off
On Monday, China’s troubled real-estate market sent shock waves across the global financial market. Hong Kong’s Hang Seng index tanked more than 4% with the real-estate giant China Evergrande Group moving towards a potential default with a surmounting $2 trillion debt.
All eyes are on the Federal Reserve’s two-day meeting starting Tuesday. Wall Street remains worried that the central bank will roll back the easing of its monetary policy. Further, it might also cut down on any stimulus plans in the future.
COVID’s delta variant cases in the US have created fear over the last few weeks. Investors remain cautious as cold weather approaches North America.
Historically, September has been a month of volatility. It is also for the first time in 2021, that both Dow Jones and S&P 500 are trading in negative since the beginning of the month.
Sectorial Stocks Take a Dive
Sectorial stocks linked to global growth witnessed major correction on Monday. automobile stocks like General Motors Company (NYSE: GM) and Ford Motor Company (NYSE: F) tanked 3.8% and 5% respectively. Boeing Co (NYSE: BA) stock was down by 1.8% and steel producer Nucor also dropped by 7.6%.
The WTI crude tanked nearly 2% on concerns of global economic recovery. As a result, the energy sector was the worst-performing group of the S&P 500. Energy stocks like APA, Occidental Petroleum and Devon Energy corrected between 5-6%.
Bond prices gained with investors moving money to safe-haven assets. However, the 10-year Treasury Yield dropped by 6 basis points. Speaking to CNBC, Mike Wilson, Morgan Stanley’s chief US equity strategist said:
“We think the mid-cycle transition will end with the rolling correction finally hitting the S&P 500. We point to downside risk to earnings revisions, consumer confidence and PMIs.”
Wilson expects a “destructive outcome” that can result in a pullback of more than 20%. Highlighting Wall street’s fear, the CBOE volatility index shot to 28 levels, the highest since May.
“We are in an information vacuum at the moment. Stalemates in Congress on the debt ceiling, worries on policy changes or mistakes in monetary policy, and a litany of proposed tax increases have dampened the mood for investors. When this occurs, corrections happen,” Jamie Cox, managing partner at Harris Financial Group said.