Global bloodbath

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US stocks 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.


According to media reports, the selloff has been sparked by inflation fears and worries that interest rates could rise faster than expected. The VIX more than doubled to 35.7 at one point. It was up more than 100% and is the largest one-day spike in history.

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 rout in US markets continued to ripple around the world.

According to various valuation metrics, many stocks markets were over-valued before last month’s rally. While the pounding in point terms was historic with the loss eclipsing the prior one-day record of 778 points lost during the 2008 financial crisis, the Dow’s 4.6% decline on Monday was not sizable enough for Wall Street pros to describe it as a crash. The decline did not even make the top 20 biggest percentage drops for the Dow. Phew!

Retail investors have continued to plow money into stocks at the fastest pace on record. After all, this train has been relentless. More than $100 billion flowed into stocks globally at the beginning of 2018, according to Bank of America Merrill Lynch data. 

In our show business, crashes are all more violent then rises. You can bet that over the next 24 hours there will be no shortage of commentary out with regard to what exactly caused things to go so wrong. I expect the sell-off to continue and so the markets will remain wobbly for the coming days or weeks.

Come on! It is too early to conclude that the multi-year bull market is over. If one was concerned that equity valuations were elevated, the recent drop may have simply skimmed off some froth.

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