Some stocks are drastically dropping -here’s why

A drastic plunge of more than 20% in US stocks looks like a reeling possibility. This is according to strategists Morgan Stanley.

While other Wall Street analysts are already warning that the next weeks or months could be unstable for investors, US stocks already began this week on a red mark. Amidst several rising risks for the market, investors continue to stay on the sidelines.

The news broke after the S & P 500 stocks kicked off an impressive 54 records for this year. However, the bleak forecast is contradictory to the TINA motto or “There Is No Alternative.” This formed the investors’ attitude last year, and most investors applied their justified positioning by offering low yields on assets and other bonds.

On a side note, Dow Jones stocks drastically lost 500 points or equalling 1.4%. This has set a record for its biggest drop since July. Though the blue-chip Dow cut back some of its losses right after opening, S&P and Nasdaq fell at a relatively high rate. The S&P 500 fell at 1.5% and Nasdaq Composite at 1.8%.

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Here are the several reasons for the sell-off:

• When the Federal Reserve sets off on their two-day meeting on Tuesday, investors are worried. Their main worry is that the Central Bank might signal to pull away from monetary stimulus despite the continuous inflation and improvement in the job market.
• Investors fear that the financial markets will be greatly affected by the troubled China property market. As the benchmark Hang Seng index dropped 4% with developer China Evergrande Group, it’s on the verge of default.
• The continuous surge of Covid cases due to the delta variant stays at January levels, and the cold weather approaching North America will defy more cases.
• Another concern the investors are looking into is the calculated risk in DC as the rise to the debt ceiling is fast approaching. US Congress returned to Washington to submit funding bills and avoid a government shutdown,
• September usually has the worst record averaging a 0.4% drop. As per history, selling rebounds in the back half of the month.

On Monday, global growth stocks faced a decline. General Motors and Boeing fell at 2% each. While Ford and Carrier were down at more than 3%, Nucor steel lost 2.8%.

A street sign for Wall Street is seen outside of the New York Stock Exchange (NYSE) in New York City, New York, U.S., June 28, 2021. REUTERS/Andrew Kelly/File Photo

Even the big banks hit falling rates. JP Morgan Chase and the Bank of America shed more than 2% each.

Morgan Stanley’s US equity strategist noted, “We think the mid-cycle transition will end with the rolling correction finally hitting the S&P 500. We point to downside risk to earnings revisions, consumer confidence, and PMIs.”

On Friday, the University of Michigan’s September consumer index was 71, just a few more than the August level, the lowest in the last nine years.

Wall Street’s fear gauge, the Cboe Volatility index, soared above the 26 levels. This is the highest since May.

Despite Monday’s declines, some stocks provided the market with backup support. Pfizer, Procter & Gamble, Walmart, and Merck posted trades in green.

Meanwhile, Dow Jones dropped on Friday, and it turned into three straight weeks of losses. The S&P 500 was at its strongest trading volume on Friday, doubling its average volume.

Jerome Powell, Fed Chair, will have a press conference on Wednesday. Powell said the tapering might occur this year. However, investors are waiting for the specifics. Moreover, mixed economic data was released after Powell’s last comments.