- All major stock indices are down between 4 and 7 percent so far this October.
- Tech stocks have been hit particularly hard.
- Rising interest rates and the U.S.-China trade war could be to blame.
Historically, the stock market has been challenged in October, and it’s no different in 2018. Every day seems to bring more big losses. The Dow and the S&P 500 have gone down more than 4 percent so far this month, and the Nasdaq is down almost 7 percent.
The loss to the market as a whole is tricky to quantify. The Russell 3000 Index represents 98.5 percent of U.S. public companies in terms of market capitalization. On Oct. 1, the index was at $1,729.19. On Oct. 18, it closed at $1,633.28, a loss of about 5.5 percent.
The size of the Russell 3000 was estimated in January at $30 trillion. The index is down 5.32 percent so far in October. That would mean that in October alone, U.S. companies had an aggregate loss of an estimated $1.6 trillion in market capitalization, based on the January market cap.
3 Reasons the Stock Market Dropped
Investors cite these reasons for the sell-off:
1. Worries About the Trade War Between the US and China
The two countries have been trading tariffs all year, with more charges likely to come. The ultimate impact of the tariffs has not yet been felt, but it’s making investors wary.
2. Rising Interest Rates
The Fed continues to tighten monetary policy to keep inflation at bay, and Treasury yields continue to trade around multi-year highs. The 10-year yield, which drives mortgage interest rates, reached its highest level since 2011 in the past week. The Fed raises rates to cool off the economy and keep inflation in check, but it means borrowers will pay more for money.
3. Overpriced Tech Stocks
The runup in the so-called FAANG stocks — Facebook (FB), Apple (AAPL), Amazon (AMZN), Netflix (NFLX) and Google (GOOG) — has had many investors concerned for some time. The tech stocks have been among the hardest hit. Facebook alone has seen its market value drop nearly $25 billion since Oct. 1.
Why Investors Shouldn’t Panic
So, what’s ahead for the market? No one has a crystal ball, but November historically is a better month than October. Over the last 40 years, the S&P 500 has increased about twice as much in November as it has in October.
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