The Dow Jones plunged Monday by 1,175 points and continued that slide Tuesday morning. Not surprisingly, many investors are confused by the freefall.
Here are five things you should know about the present panic on Wall Street:
1. The Dow Jones industrials suffered its worst one-day point drop ever on Monday. It even was down by 1,600 points at one point. This was actually worse than the memorable decline on Sept. 29, 2008, during the Great Economic Meltdown, CNBC reported. The market lost 777 points back then. Still, as a percentage of the market (4.6 percent), it was not a record.
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2. Interest rates might be to blame. Bond traders believe the sell-off, which began Friday, was triggered by speculation that the U.S. Federal Reserve is set to raise interest rates. The fear is that higher interest rates would lead to lower home sales and less new construction, which can trigger a downturn.
3. This might not be a correction. A correction would require the Dow to lose around 10 percent of its value, Vox pointed out. The Dow only lost 6.5 percent of its value on Monday. However, stock market strategist Steve Stovall told Vox that a 20 percent drop in the market is possible.
4. The real estate market might be worse than stocks right now. U.S. home sales fell sharply in December, the National Association of Realtors reported. Home sales fell by around 3.5 in the final month of 2017. The number of previously owned homes fell by 11.4 percent to 1.8 million, the lowest number since January 1999.
5. Advisors are telling people to sell their stocks. Bank of America Merrill Lynch analysts gave investors a “sell indicator” Friday, CNBC reported. The indicator means that the market is overheated and primed for a big fall.
The Bank of America Merrill Lynch Bull & Bear or sell indicator is one of the most accurate predictors of market activity, CNBC reported.
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