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Why Did the Dow Plunge More Than 1,000 Points? Should I wait for stocks to go lower? Here’s what some pros think.

What a difference one day makes.

Fresh from the best percentage gain for the Dow Jones Industrial Average DJIA,
-3.12%
since November 9, 2020, the blue-chip index has been beaten along with the rest of the stock market, including the S&P 500 SPX,
-3.56%
and the Nasdaq Composite COMP,
-4.99%.

Not even US Treasuries were safe, with the 10-year TMUBMUSD10Y Treasury Note,
3.081%
Rise above 3% when prices fall.

Some experts attributed Wednesday’s rally to a statement by Federal Reserve Chair Jerome Powell that a 75 basis point hike would not be actively considered by central bank policymakers at upcoming meetings.

The remark came after the Fed on Wednesday made what was widely expected to be the first half-point rate hike since 2000 in the final months of President Bill Clinton’s second term.

The Fed has hiked rates to combat a surge in inflation following the COVID-19 shutdowns and dislocations, exacerbated by the bloody conflict in Ukraine following the Russian invasion in late February.

Some industry observers attribute Thursday’s sell-off in part to fears that inflation will continue to dog economies in the US and elsewhere in the world.

Data on Thursday showed that productivity among American workers and businesses fell 7.5% annually in the first quarter, the biggest drop since 1947 amid supply and manufacturing shortages.

“It was a setback to our golden 2020s scenario of a technology-led productivity growth boom offsetting chronic labor shortages,” said Yardeni Research, a provider of global investment strategies founded by MarketWatch contributor Ed Yardeni.

Meanwhile, Greg Bassuk, CEO of AXS Investments in New York, said the day’s action “reflected a continuation of the high volatility market roller coaster of 2022, with this session’s sharp downward spiral erasing yesterday’s gains.”

Bassuk told MarketWatch that “investors are selling today on renewed concerns over the abundance of ongoing uncertainty.”

The AXS CEO highlighted tensions with China, Russia’s siege in Ukraine, as well as mixed corporate earnings and nagging concerns that COVID-19 could hamper a stronger recovery in parts of the world.

See: China-focused ETFs are falling as Blinken reportedly plans to confirm that China is the US’s main competitor

Recession fears and inflation worries have been at the center of Wall Street’s recent downturn. “There is no doubt that inflation, rising interest rates and volatility will continue to characterize the market environment [the second quarter] and beyond,” Bassuk said.

“What’s really interesting about these markets is that there are these two-day, two-way moves where investors are unabashedly bullish the next day or unabashedly bearish the next day,” said Sylvia Jablonski, chief executive and chief investment officer at Defiance ETFs in NYC.

In fact, MarketWatch’s Bill Watts wrote that with the exception of 2020, the S&P 500 has already topped or is on track to outperform annual aggregate moves of 2% or more for every year going back to 2011.

Read: Almost 4 months for stocks: The S&P 500 records its worst start to the year since 1939. Pros say what you should do now.

Jablonski said there was still room for hope.

“Inflation may have peaked, growth may be slowing, but it’s still positive. The consumer still spends [and] Employment is at an all-time high,” she said, further pointing to the as much as $2 trillion in excess savings is said to have been amassed during the pandemic.

Market Extra (July 2021): US wealth grew by $19 trillion during the pandemic – but mostly for the very wealthy

The volatile market conditions are fueling confusion about the outlook. Is it time to get into stocks, or should investors wait for a better entry point? Or should we heed the advice of billionaire investor Paul Tudor Jones and stay away from traditional markets altogether?

History shows that you cannot time the market and that the market wins over a long period of time. The big question is what is your time frame, what is your pain tolerance?

The slump in bonds with rising yields and falling prices is making things difficult for some investors. Treasuries, notably the benchmark 10-year Treasury note TMUBMUSD10Y,
3.081%,
are traditionally viewed as a haven in times of uncertainty, but they have also been reversed in the face of the Fed’s current rate-hike plan, which has led to bonds being sold on hopes of higher yields.

Also read: “The long bull run in bonds is over,” says Scott Minerd of Guggenheim

And look: Dollar rises as Bank of England’s gloomy economic forecast gives investors reason to sell Treasuries, stocks

https://www.marketwatch.com/story/why-is-the-dow-down-more-than-1-000-points-should-i-wait-for-stocks-to-sink-lower-heres-what-some-pros-think-11651777100?rss=1&siteid=rss Why Did the Dow Plunge More Than 1,000 Points? Should I wait for stocks to go lower? Here’s what some pros think.

Brian Lowry

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