After more than nine years of stocks marching higher, a new reality is sinking in among investors: The long, smooth ride is over. And it doesn’t feel good.
Major stock indexes suffered a steep drop in late trading on Thursday, the second straight day that stocks plunged shortly before the markets closed. The 3.75 percent decline pushed the Standard & Poor’s 500-stock index down more than 10 percent from its peak in late January. That means the market is technically in correction territory — a term used to indicate that a downward trend is more severe than simply a few days of bearish trading.
“There was a big empty void on the buy side toward the end of the day,” said Jonathan D. Corpina, a senior managing partner at Meridian Equity Partners, a brokerage firm.
The past week has offered a vivid illustration of how, in a market dominated by fast-moving, computerized trading strategies, things can go from good to bad in the blink of an eye. Last Thursday, markets were on an epic winning streak. But a bad day last Friday was followed by more selling, which begot more and more selling.
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“We’ve been trained that the market does nothing but go up,” said Bruce McCain, chief investment strategist at Key Private Bank. “And then suddenly, they’re anxious, they’re sitting nervously on the sidelines, and then they can’t take it anymore.”
In addition to the S. & P. 500’s drop on Thursday, the Dow Jones industrial average fell 4.15 percent. The Chicago Board Options Exchange Volatility Index — a measure of the choppiness of markets — surged by 21 percent.
The market correction doesn’t mean that the bull market in stocks — which have been roaring since March 2009 — is over. Markets also experienced a correction in early 2016 before shaking off their jitters and continuing to climb.
Indeed, such ups and downs are routine in most market environments. What makes the past week feel different is that an eerie calm has blanketed markets for the past year.
Noah Weisberger, a managing director at AB Bernstein, said that over the past few decades, a 10 percent drop would normally happen every 18 months or so.
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“It’s disquieting, it feels terrible, it’s eye-popping when you look at the screen, but it doesn’t yet tell you that something is broken,” he said. “It’s certainly a change in behavior relative to 2017, but then again, 2017 is an anomalous period with incredibly low volatility in the market, a very smooth glide-path higher.”
The long bull market — stocks were up more than 300 percent at their peak in late January — has been underpinned, in part, by the extraordinary efforts of the world’s central bankers to re-energize growth in the aftermath of the American financial crisis and the deep global recession that followed.
Those efforts pushed interest rates to the lowest levels since World War II, making the safest investments unappetizing and prodding investors toward the stock market.
Now in the face of broad global growth, some think the central banks will raise interest rates faster than previously expected, eroding a crucial source of confidence that the stock market climb would continue.
Earlier Thursday, the Bank of England said as much, raising its forecasts for economic growth and stating that it may have to raise rates “somewhat earlier and to a somewhat greater extent than we thought in November.”
That statement sent up yields on British government bonds, known as gilts.
Yields on Treasuries followed suit, rising to 2.88 percent in early stateside trading. The sight of yields on United States government bonds approaching 3 percent seemed to give the markets pause.