tocks went into free fall on Monday, and the Dow plunged almost 1,600 points — easily the biggest point decline in history during a trading day.
Buyers charged back in and limited the damage, but at the closing bell the Dow was still down 1,175 points, by far its worst closing point decline on record.
The drop amounted to 4.6% — the biggest decline since August 2011, during the European debt crisis. But it was nowhere close to the destruction on Black Monday in 1987 or the financial crisis of 2008. Still, for investors lulled to sleep by the steady upward climb since Election Day, it was alarming.
The White House said through a spokesman that “markets do fluctuate in the short term,” but it stressed that the fundamentals of the economy are strong.
The trouble in the market began early last week, when investors focused on a number of lingering concerns.
If the economy gets much stronger, it could touch off inflation, which has been mysteriously missing for the nine years of the post-crisis recovery. That could force the Federal Reserve to raise interest rates faster than planned.
“People are dealing with the shock of seeing real inflation for the first time in a while,” said Bruce McCain, chief investment strategist at Key Private Bank.
The sell-off wiped out the Dow and S&P 500 gains for the year, and left the Nasdaq barely in positive territory for 2018.
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Investors have also been nervously watching the bond market, where yields have been creeping higher. As yields rise, bonds offer better returns, which makes them more attractive to investors compared with risky stocks.
Stocks sank throughout the day, then went off a cliff in the final hour of trading. The Dow was down 800 points at 3 p.m. Within minutes, it was down 900, 1,000 — and then 1,500 points. At its low, the Dow was down 1,597 points, before buyers rushed in and limited the decline.
The Nasdaq slumped more than 2%, quickly turned positive, then sank again. It finished down almost 4%. The S&P 500, a broader gauge of the market than the Dow, declined more than 4%.
The plunge pushed stocks closer to what’s called a correction, or a 10% decline from their most recent high point. The S&P 500 is down almost 8% from its all-time high.
“The stock market is throwing a tantrum,” said Andres Garcia-Amaya, CEO of wealth management firm Zoe Financial.
“Take a deep breath,” said Garcia-Amaya. “I know it’s been a while since we had a day like today, but nothing has really changed from a fundamental standpoint.”
The market started 2018 with a bang, but last week was the worst on Wall Street in two years. The selling gathered steam on Friday when the Dow plunged 666 points, or 2.5%, at the time its worst day since the Brexit mayhem of June 2016. Nearly trillion of market value was erased from the S&P 500 last week.
“You had a market that was overbought and ripe for something to undermine its tranquility,” said Mark Luschini, chief investment strategist at Janney Capital.
The VIX volatility index, a measure of market turbulence, skyrocketed a record 116% on Monday to the highest level since August 24, 2015, the last time the Dow plunged 1,000 points in a day. The spike signifies how calm Wall Street had been — and how unprepared the markets were for trouble.
CNNMoney’s Fear & Greed Index is flashing “fear,” underlining a major shift in market sentiment from a week ago when it was sitting in “extreme greed.”
The Russell 2000, an index of smaller stocks that have heavy exposure to the U.S. economy, turned negative for 2018 for the first time.
“Valuations got stretched and that led to a cascading effect today,” said Sam Stovall, chief investment strategist at CFRA Research. “The market has to correct itself — a resetting of the dials — before this bull market can continue.”
Related: Good news for Main Street is freaking out Wall Street
Investors’ main concern is the sell-off in the bond market. The 10-year Treasury yield, which moves opposite price, spiked to a four-year high of 2.85% on Friday. It’s a dramatic swing from 2.4% at the start of 2018. Higher yields could make normally boring bonds look more attractive when compared with risky stocks.
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HISTORIC LOSS! DOW Drops 1600 Points – Worst Single-Point Drop In History *2018*