The Dow and broader U.S. stock market plunged on Monday, erasing earlier gains as concerns about overvalued assets reverberated across Wall Street.
All three major stock indexes traded sharply lower at the start of the week, reversing earlier gains for Dow futures. The blue-chip Dow Jones Industrial Average (DJIA) sold off as much as 216 points. It was last down 177.50 points, or 0.6%.
The broad S&P 500 Index of large-cap stocks fell 0.6% to 3,220.78. Ten of 11 primary sectors traded lower, with information technology leading the pack. Communication services and discretionary shares also under-performed the broader index.
Meanwhile, the technology-focused Nasdaq Composite Index fell 0.8% to 8,931.23.
The CBOE Volatility Index, commonly known as the VIX, spiked on Monday to its highest level in three weeks. The so-called ‘investor fear index’ jumpee more than 12% to hit 15.13 on a scale of 1-100 where 20 represents the historic average.
Even with Monday’s sudden reversal priced into the market, U.S. stocks are on track for one of their best years in over two decades. Year-to-date, the major indexes have gained between 22% and 35% thanks to renewed Federal Reserve intervention and optimism around U.S.-China trade talks.
Despite the rosy outlook, calls for a steep correction are growing louder as investors grapple with overvaluation risks, geopolitical uncertainty and slowing overseas economies. Even Berkshire Hathaway CEO Warren Buffett has complained that equities have become too expensive to acquire in recent years.
As CCN.com reported over the weekend, one of the world’s biggest fund managers is warning that a steep market correction could come as early as 2020. Joe Davis, Vanguard’s head of investment strategy, says there’s a 50% chance of a major downturn next year. The investment firm manages more than $5.6 trillion in assets.
Chris Harvey, Wells Fargo’s securities head, recently told CNBC that investors can expect a 5% to 10% correction in early 2020:
Morgan Stanley Wealth Management has identified ten major risks that could threaten the decade-long bull market in 2020. At the top of the list are key leadership races in advanced industrialized nations, the emergence of competing trade blocs and Chinese political economy.
These fundamental risks have made gold a more attractive investment option. On Friday, gold’s future price touched fresh three-month highs. The yellow metal is a proven safety net during periods of economic and geopolitical turmoil but its primary driver is real interest rates.