Key Takeaways
U.S. stocks continued to slump on Monday, extending last week’s sell-off as economic and political uncertainty continued to dampen the mood on Wall Street.
The S&P 500 closed 2.7% lower, putting it nearly 9% off its record high from just three weeks ago. The tech-heavy Nasdaq Composite slumped 4%, its biggest one-day decline since September 2022, putting it deeper into correction territory . Both indexes are trading at their lowest levels since last September.
The Dow Jones Industrial Average, which gives less weight to large tech stocks, fell 2.1%, putting it below its pre-election level for the first time. The S&P 500 and Nasdaq had already erased their post-election gains by last week.
How Long Will the Stock Slump Last?
Some experts argue the current sell-off could end as quickly as it began. “This is a headline driven market; one that could change in an hour,” said Gina Bolvin, President of Bolvin Wealth Management, on Monday. “We finally have the correction we were waiting for, and long-term investors will be rewarded again.”
George Smith, portfolio strategist at LPL Financial, pointed out in a note last week that sell-offs are, on average, good buying opportunities. Since 1950, he wrote, the S&P 500—and, prior to 1959, its precursor index—has dropped more than 1.75% in a day eight times a year on average. The index has historically outperformed in the 1-month, 3-month, 6-month, and 1-year periods after such sell-offs.
Granted, the S&P 500 on Monday notched its third 1.75% decline this month, a frequency more consistent with losing years, when the index has averaged 15 days with a loss of 1.75% or more.
Others have struck a more cautious tone. LPL Financial’s Chief Technical Strategist, Adam Turnquist, on Monday wrote technical indicators suggested the sell-off could have more room to run. About 53% of S&P 500 stocks were trading above their 200-day moving averages on Monday morning, which “leaves little room for error as 50% is the general threshold used to bifurcate bullish and bearish market breadth.” While “most indictors are at/near oversold levels,” he wrote, “we caution against buying the dip until there is more supportive technical evidence.”
What Sparked the Sell-Off?
The stock market has been rattled in the last month by increasing uncertainty about the direction of U.S. policy. President Trump has, on two occasions, threatened, imposed, and delayed tariffs on America’s largest trading partners. He’s also promised reciprocal tariffs on all imports starting early next month.
Investors, businesses, and consumers are all worried that tariffs will lead to higher inflation this year. Tariffs were a primary reason consumer sentiment fell off a cliff and inflation expectations jumped in February.
Investors and economists are also anxious that Trump’s efficiency initiative, led by Tesla ( TSLA ) CEO Elon Musk, will harm the labor market. Musk’s Department of Government Efficiency has begun to cull the federal workforce and cancel government contracts that support private-sector jobs. While the unemployment rate ticked up only slightly in February, the underemployment rate, which counts part-time workers looking for full-time work, jumped to 8% from 7.5%.
"Historically, part-time and temporary positions can offer an early glimpse into future employment trends," wrote Ronald Temple, asset manager Lazard’s Chief Market Strategist, in a note on Monday. The underemployment figures, Temple wrote, “add to my growing concerns related to the falling hire and quit rates … that could signal increasing fragility in the US labor market.”
With tariffs and job cuts expected to boost prices and slow growth,
fear of stagflation
is on the rise, nudging investors toward safe-haven assets like Treasury bonds and stocks in defensive sectors. Treasury yields, which move in the opposite direction of bond prices, have sharply declined in recent weeks. Consumer staples stocks finished only slightly lower on Monday and have
outperformed the broader market
over the past month, while the S&P 500's utilities sector gained 1% today to buck the downturn.
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