Coverage: The stock market drops more than 4 percent

The Standard & Poor’s 500 index fell by more than 4 percent on Monday, deepening its losses from the previous week and erasing its gains for the year while the Dow Jones industrial average sank by 4.6 percent.

Matt Phillips of The New York Times had the news:

Those sharp moves come as investors digest the growth prospects for the world — and rebalance their views on the relative merits of stashing their cash in risky assets like stocks, safer spots such as government bonds and the myriad investment opportunities offered by a global economy moving in sync.

The world’s largest economies are all expanding, as the most important central bank, the United States Federal Reserve, is draining billions of dollars from the financial system and raising interest rates. And investors are concerned that tenuous signs of inflation could mean central banks around the world will start to remove their support even faster.

It’s an interesting complexity for investors to assess. What’s good for the economy isn’t always good for the markets. The strong job report last week fueled hopes that wage growth would follow. But higher wages could lead to higher inflation, creating new challenges for the central bank to manage.

New leadership at the Fed is adding a degree of uncertainty. Jerome H. Powell was sworn in as the 16th chairman of the Federal Reserve on Monday, after the departure of his predecessor, Janet L. Yellen. The markets do not have a clear understanding of exactly how, if at all, Mr. Powell’s views on unemployment and inflation will differ from that of Ms. Yellen.

Matt Egan of CNNMoney.com reported that it was the biggest point loss in the Dow’s history:

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.

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.

And the rout in U.S. markets continued to ripple around the globe. Japan’s Nikkei index plunged 4% in Tuesday morning trading while the S&P/ASX 200 in Australia dropped 3%.

The White House said in a statement that President Trump was focused on “our long-term economic fundamentals, which remain exceptionally strong.” The statement cited strengthening economic growth, low unemployment and increasing wages for workers.

The trouble in the market began early last week, when investors focused on a number of lingering concerns.

Heather Long of The Washington Post explained why the market has been selling off:

Let’s unpack what you need to know if you are someone who invests in stocks and bonds for the long term and mostly tries to forget about the daily turbulence.

Wall Street was overdue for a reality check. The Dow Jones industrial average was up over 26 percent from January 2017 to January 2018. That’s a massive jump in one year. Historically, the stock market has gained 8 percent, on average, in a year. We just experienced three times that amount. Investors were beginning to look around and question whether stocks really should be at such high levels.

It’s not a true correction yet. For all the alarming headlines, this isn’t a true correction yet. A correction is defined as a 10 percent drop from the prior market peak. On Wall Street, it’s the equivalent of giving someone a time out. It may seem hard to remember now, but the Dow was sitting at an all-time high on Jan. 26, just over a week ago. At the moment, the Dow is down 8.5 percent from that record level. So it’s close to a correction, but not there yet. (The S&P 500 is down about 7 percent from its record level).