The stock market has offered a wild ride to investors in 2018. The market started on a high after a record closing quarter in 2017. That was followed by months of intense volatility as investors were unsettled by global trade tensions and an ongoing battle of tariffs between China and the United States.
The second half of the year has been much calmer, and most sectors have had growth across the board. Recent success made Wednesday’s results even more shocking, as the Dow jones took a tumble of 830 points by the end of the day.
All Sectors Suffered Losses
Losses were tracked across all major indexes and every sector. The Dow Jones Industrial Average slipped -3.15%. The S&P 500, which tracks the largest capitalization stocks, slipped -3.29%. The NASDAQ Composite Index, one of the most profitable indexes of the year, slipped by -4.08%.
Investors are reeling, and the news could lead to more sell-offs from short-term traders before things get better.
Leading Factors in Stock Market Tumble
Rising rates have loomed over the stock market throughout each quarter of this year. With federal rates set to climb again in this quarter, investors are starting to take note. Higher interest rates will cut into profits for companies both large and small, as borrowing becomes more expensive. Treasury Note yields are at a seven-year high, which is compounding the situation.
Allianz Investment Management said on Wednesday that “Today’s equity selloff is a reaction from investors finally realizing we are in a higher interest-rate environment.”
October is historically a month of high volatility, which should be taken into account.
Some analysts also believe that investors are switching to value strategies and abandoning growth stocks. This could explain why some of the largest capitalization stocks were hit so hard yesterday.
Stock Market Still Up for the Year
Yesterday’s losses are significant, but perspective is important. Take Amazon for instance. Stock in the company fell 6.15% at close, erasing gains from the last three months. However, the stock is up 50.09% for the year to date, and 75.36% over twelve months.
The NASDAQ had the biggest slide of all indexes, yet it is still up 7.51% for the year. Diversified investors who don’t engage in short term trading are still winning, and this is critical to remember. Similar year to date growth can be seen on all major indexes.
Stocks may recover slightly at the end of the week, as opportunistic investors seek lower prices on some of the best growth stocks. However, Wednesday’s drop should be a warning that market fluctuations can be severe, and undiversified investors who rely on short term gains should be extremely wary.
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