It’s nail-biting time on Wall Street.
Stocks had been dropping at worrisome rates for several days, but on Monday things went from concerning to panicky. At one point, the Dow Jones industrial average plunged more than 1,200 points, on a day when equity markets tumbled across the globe. It closed down 1,034 points, or 2.6%.
Technology stocks have been hit particularly hard lately: The Nasdaq composite was, for a moment on Monday, down more than 10% since the middle of last week, entering into what economists euphemistically call “correction” territory.
The sudden pullback has jolted investors and raised questions that go beyond financial markets to questions about the underlying health of the economy.
And even when things level out, the window-rattling downturn threatened to kill the political euphoria that has swept over Democrats since President Biden withdrew and Vice President Kamala Harris emerged as the party's standard-bearer.
So what's happened and what may be next? Here are first-draft-of-history answers to some of the crucial questions:
What’s causing the current plunge in U.S. stock markets?
Economists point to several factors behind the sell-off. To begin with, tech stocks were overdone, pushed beyond their underlying value by the artificial intelligence craze. Hence the Nasdaq correction. Nvidia, Apple and Intel were among big losers Monday.
And Friday’s jobs report, which showed a sharp slowdown in hiring and unemployment in July, set investors — even those not deep into tech — on edge. That came on the heels of news that jobless claims, a proxy for layoffs, increased significantly in the waning days of July.
It hasn’t helped that the Federal Reserve has been reluctant to start cutting interest rates, which have throttled inflation as intended, but also weighed down businesses and consumers.
Then there’s the reverberation from global markets. On Monday, Japan’s once-high-flying stocks took their worst drubbing since Black Monday in 1987. The huge losses were seen, in part, as being a reaction to market declines and growing concerns in the U.S.
“It’s an unfortunate sequence of events that causes selling, selling, selling,” said Christopher Rupkey, chief economist at Fwdbonds, a research house in New York.
How have stock markets in the U.S. performed overall this year?
Even with Monday’s panic-selling, stocks generally are up for the year, many way up.
Both the broader Standard & Poor's 500 and Nasdaq are still more than 9% higher compared with the start of the year. The Dow is the laggard, up only 2.6% since Jan. 2.