Not so long ago a stock market drop of 2 percent would draw little reaction from the money world. But Tuesday’s 1.37 percent decline — a 362-point retreat — looked downright bloody to an investor class accustomed to a smooth march upward over the past year.
The Dow Jones industrial average plunged 411 points at one point, a full-throated market decline led downward by health-care stocks.
The Dow plunged 540 points in two days, the first consecutive, two-day drop in the blue chips this year. The Dow is still up 5.63 percent for 2018.
The Standard & Poor’s 500-stock index dropped a tad more than 1 percent Tuesday, closing at 2,822. It is still up 5.57 percent on the year. It had peaked Friday up 7.5 percent on the year. The health care sector alone had been up 10.8 percent before stocks ebbed.
What’s going on?
”It’s just profit-taking,” said Jeffrey Schulze, an investment strategist at ClearBridge Investments. “If you look at the markets over the past couple of years, we haven’t had a draw down over that time. We’ve gone the longest in over 100 years without a five percent pullback, so we think this is overdue.”
The CBOE Volatility Index, also known as the Wall Street Fear Index, a popular measure of the stock market’s expectation of volatility implied by S&P 500-stock index options, on Tuesday hit its highest level since August 2017.
Wall Street wags cited a number of culprits conspiring to spoil the bull market party. End-of-month portfolio rebalancing, anticipation over interest rates, oil prices, a too-good-to-be true earnings season — even questions over Apple’s iPhone — seemed to set in at the same time.
”It’s not any, one single headwind,” said Steven Hill, equity portfolio manager Foresters Financial. “Interest rates is a big one. The sharp increase in bond yields is finally becoming a topic of discussion. Higher yields have made bonds more attractive as investment alternatives to stocks. You got negative news on the Apple iPhone X sales. You’ve got health care news today that created some uncertainty. Oil is off.”
Hill said he saw no signs of panic, and most pullbacks in recent years have been followed by rallies.
“Is this going to be followed by another rally? I don’t know,” Hill said.
Health care took a beating. The day began with three giants of American business — Amazon (founded by Washington Post owner Jeffrey P. Bezos), Berkshire Hathaway and JPMorgan Chase — teaming up to announce an ambitious yet vague effort to tackle U.S. health care costs.
That sent health care stocks tumbling, with pharmaceutical giant Pfizer dropping 3.1 percent even as it reported robust earnings. Insurer Aetna dropped 3.02 percent and managed care company UnitedHealth Group declined 4.35 percent.
Chevron dropped 2.53 percent, Coca Cola was down slightly and Apple declined on reports of fading iPhone X demand. Amazon was one of the few tech survivors, gaining 1.42 percent.
President Trump delivered his first State of the Union address Tuesday night. That created a certain degree of irony given that the president has been boasting about the market’s 8,000 point climb since his election in November 2016.
Dow futures were trading on a slight upswing early Tuesday morning.
Some analysts say stocks are overvalued and a correction of five percent or more is overdue. There were predictions during Monday’s decline that the fallback could be as much as 10 percent in coming days.
James Norman, president at QS Investors, a quantitative asset manager that is a subsidiary of Legg Mason, remarked on the extraordinary calm in the markets during the past year.
“In 2017, the U.S. market was up over 22 percent, as measured by the S&P 500 index without experiencing a single month when the market declined — the first time this has happened since 1958,” Norman said in a one-page paper.
Alexandra Coupe, associate director at PAAMCO, said “low volatility may have persuaded equity investors to believe the trend is your friend. However, trend is more ’frenemy‘ than friend and can change course quickly.”
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