After weeks of strong gains, the stock market seems to have hit a bump. On Thursday when the markets closed, all the major indexes were in negative territory. Are investors finally taking the reality of the recession into account, or is this a short term blip in what has been a strong year for stocks?
Major Stock Indexes Post Losses at Closing
All of the notable market indexes were down at the closing bell yesterday.
- The NASDAQ Composite Index (COMP) was down -4.96%.
- The Dow Jones Industrial Average (DJIA) was down -2.78%.
- The S&P 500 (SPX) was down -3.51%.
Even the indexes tracking smaller stocks were down, suggesting that there is trouble in the small-cap space. The Russel 2000 Index was down -2.99% at the close of trading. It is now down -7.42% in the year to date.
What’s Driving the Change in Sentiment?
Investors have been bullish on stocks this year, despite knowing that the economy is in recession. Some stocks have genuine strength, such as key retail and technology stocks. Commodity-linked stocks have also performed well, thanks to high prices for gold and silver.
Revenue losses linked to the Coronavirus Pandemic haven’t been as bad as expected, and some companies have even generated strong growth during state lockdowns. All of these factors have contributed to a surprising amount of confidence.
So what changed on Thursday?
Chinese and U.S. tensions have increased this week, but not enough to cause any real damage to the trade relationship. Tech stocks were the biggest losers on Thursday, which signals that some investors no longer see the need to hold money in these traditional ‘safe havens’.
Some analysts see it as a natural correction. Stocks have been unusually high even as the Coronavirus Pandemic wreaked havoc on the economy. This pullback may simply be a late reaction to the recession.
Is This the Start of a Prolonged Decline?
It’s far too early to call whether stocks will continue to decline. Market futures are down ahead of Friday’s session. We will see a long-weekend thanks to Monday’s Labor Day Holiday. The shortened trading week could lead to some volatility as it typically does, but nothing out of the ordinary is expected.
Investors don’t need to react drastically to this latest news. It’s an opportunity to reassess portfolios and rebalance holdings. A prolonged decline looks unlikely at this stage.
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