The Dow Jones Industrial Average fell over 650 points today, continuing a precipitous plummet that has seen the Dow lose approximately 1,400 points over the past two days, following reporting by the Inquisitr yesterday. According to CNBC, it was also the first time that the Dow had opened below its 200-day average in over four months — ending a solid run of continuous market gains. The S&P has also suffered through its sixth straight day of losses, trading down 2.1 percent, while the NASDAQ suffered a 1.5 percent loss. Even with investors flocking to safer assets like government bonds, benchmark 10-year treasury yields receded to 3.13 percent, while two-year yields fell to 2.84 percent.
Investors have been nervous about rising interest rates from the Federal Reserve, coupled with rising yields — slowing down the economy while creating a period of stagflation. Some of those fears have been allayed with the release of inflation data from the U.S. government that shows only a 0.1% increase in the price index last month.
“Net, net, the economy may be running hot, but it isn’t fast enough to kick up inflation pressures and calls into question the need for Fed policymakers to move interest rates to higher levels,” said Chris Rupkey, chief financial economist at MUFG Union Bank.
“It’s a momentum correction, not a portfolio correction,” said Joe Terranova, chief market strategist for Virtus Investment Partners. “While we have a bias to believe that 2008 could happen again, I don’t think this is the case.”
While banks and investment firms are suggesting that this is a temporary market correction, other economic indicators show a gloomier forecast that has spurred the investor selloff. A week ago, Market Watch published a prediction from Market Extremes president Hayes Martin, with Martin predicting that a market correction was looming due to the divergence between a few large-cap stocks and the fading of the vast majority of other stocks. This created an illusion of market strength even as the market became progressively vulnerable. In fact, the divergences were so great that they have not been seen to this extent since 1973. Additionally, divergences within the large-cap sector — particularly the weakness of the financials sector — is similar to conditions just prior to the 2009 recession.
Just last week, Newsweek proposed that a vast majority of business economists predicted a recession to begin by the end of 2021, mostly due to the trade policies of the current administration. Forbes identified changes in the Conference Board’s Leading Economic Index (LEI) and Fed interest rates, in addition to trade tensions, as pointing toward a potential recession.