Stock market falls 1.2%, ending longest streak of calm since 1995
Wall Street finally got what it's been fearing: a big down day in the stock market.
The Standard & Poor’s 500 stock index suffered its worst day of the year Tuesday. It closed down more than 1% for the first time since Oct. 11, or 110 trading sessions, ending its longest streak of calm since 1995, according to data compiled by Ryan Detrick, senior market strategist at LPL Financial. It fell 29.45 points, or 1.24%, to close at 2344.02, lowering its gain for the year to 4.7%. The Dow Jones industrial average also fell -- sliding nearly 238 points, its biggest one-day point and percentage loss since Sept. 13.
Wall Street pros say the market, which has enjoyed a virtually uninterrupted rise and a nearly 10% gain since President Trump’s election win in November, was dragged down in part by fears that the president’s economic agenda was getting bogged down in politics. Traders worry that the fight to get a Republican health care bill through Congress will delay other planks of Trump's economic agenda, such as cutting corporate taxes and passing an infrastructure spending bill.
“There are some concerns over the ability of the Trump administration to push its growth oriented initiatives while bogged down on health care,” says Bill Hornbarger, chief investment officer at Moneta Group. Stocks that have performed well in the "Trump Rally," such as those of banks and small companies, fell sharply Tuesday. The Financial Select Sector SPDR ETF fell nearly 3% and the Russell 2000 small-company stock index declined 2.6%.
The Republican-controlled House revised its bill to replace the Affordable Care Act late Monday but it's still unclear whether the changes are enough to ensure passage in the Senate.
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The stock market also succumbed to the weight of expensive stock prices, as well as fresh concerns that the hoped-for economic rebound might not be as robust as forecast.
Despite the expectation for faster expansion under Trump, U.S. estimated GDP growth for the first three months of 2017 has been declining since the start of March. The Federal Reserve Bank of Atlanta recently lowered its first-quarter growth projection to 0.9% from roughly 2% three weeks ago.
“There's an ongoing tug of war with regard to the state of the economy: is it gaining traction or are data releases going to signal a slowdown?” says Quincy Krosby, market strategist at Prudential Financial.
For the moment, Wall Street pros view the market setback as a normal pause after a long stretch without a sizable selloff.
“It might be a shock to the system to get a big red down day, but it’s not a reason to panic,” says LPL’s Detrick.
Detrick’s data show the market could become more turbulent in coming days. Still, stocks have tended to rebound and head higher after other streaks of 100 days or more without a 1% drop ended. Five days after such streaks were snapped, the S&P 500 remained down 1%.
Brad McMillan, chief investment officer at Commonwealth Financial Network, says the decline is not a sign of a major washout ahead.
“Even with today’s decline, the market is about 2% from the all-time high,” he says. “This is not a serious pullback, not even close.”
Joe Quinlan, chief market strategist at U.S. Trust, says stocks will be buoyed by a continuation of profit growth at U.S. companies and improving economic conditions around the world. The recent drop in the value of the U.S. dollar will also provide a lift to big U.S. companies that do a lot of business abroad, as their products will be more affordable overseas, he says.
Krosby says it's a good thing when investors are reminded stocks go down.
“A pullback extinguishes the froth that has built up," she says.
The next key catalysts for the market, Krosby says, will be the upcoming first-quarter corporate earnings season, as well as any progress Trump can make ontax reform.