Wall Street Ends the Day in Correction Territory

“The question for investors is when to catch this falling knife”, Barty wrote.

In a matter of five sessions, sentiment shifted dramatically on Wall Street and seemed to climax early on a volatile Monday, when the S&P fell as much as 12.5 percent from its record intraday high set last May, and the Dow Jones industrial average, fell 1,089 points shortly after the opening bell.

Mellahi says that while the rate cuts may buoy markets in the short-term, the underlying causes of investors’ concerns – the slowdown in the Chinese economy – will last for some time. The Dow (DJI) had tumbled more than 1,000 points right after the open, before recouping more than half of that drop.

In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance during trading on Tuesday.

As of 9:57 a.m. ET, the Dow was down 537 points, or 3.3 percent, to 15,922.

After a sharp sell-off in the final hour of trading, the index ended the day down more than 200 points. The FTSE 100 index of leading British shares dropped 4.7 percent. The circuit-breaker provisions, which have been tied to the S&P 500 since 2013, were previously linked to the 30-member Dow Jones Industrial Average and triggered at quarterly declines of 10%, 20% and 30%. “We were buying a lot of blue chip names, down 5 to 10%”.

Numerous calls were from more experienced clients who were fearful of the latest news.

“The fundamental reasons why one owns stocks are unbroken”.

Utilities, railroad, commercial real estate, and natural gas stocks also came under pressure on the day, moving lower along with most of the other major sectors.

“I think it’s just a sort of natural effect to the repeated message that’s been given by the Federal Reserve that we’re going to end this era of low interest rates“, Werner said.

So investors have to decide: Is this selling wave a short-term correction? He notes that most major declines have “only tended to occur in, and around, recessions, and we doubt very much that one of those is around the corner”.

Some of the blame, he said, goes to: “long believed skepticism on Chinese economic growth, Europe’s lingering weakness, the debate over low oil implications, corporate profit margins peaking, and eventual Fed rate hikes”. If you’re looking at three months maybe not, but if you’re looking at a few years out and your retirement is whenever it might be. “We’re ready for these kind of things”.

The less pricey stock valuations had some investors buying the dip.

By contrast, U.S. investment grade bond funds are down 0.19% as a group from May 19 through August. The Standard & Poor’s 500 index slid 77.68 points, or 3.9 percent, into “correction” territory – jargon for a drop of at least 10 percent from a recent peak. Currencies fell hard in developing economies – particularly those that rely heavily on the export of commodities and oil, both of which China is a big consumer.

“A steeper and more protracted selloff is to be expected now that it is underway”, said David Kudla, CEO and chief investment strategist of Mainstay Capital Management in Grand Blanc.