Dow’s Sudden 200-Point Plunge Echoes Growing Concerns About Stock Market Crash

The Dow and broader U.S. stock market plunged on Monday, as investors began to grapple with overvaluation risks ahead of the new year.

Posted in: Market News
Published:
December 30, 2019 4:08 PM UTC
  • U.S. stocks plunge through the morning session, with the Dow falling over 200 points.
  • The CBOE Volatility Index jumps more than 12%.
  • Calls for a steep market correction are growing louder.

The Dow and broader U.S. stock market plunged on Monday, erasing earlier gains as concerns about overvalued assets reverberated across Wall Street.

Dow Plunges; S&P 500, Nasdaq Follow

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 Dow suffered a brisk selloff on Monday but is still on track for yearly gains of around 22%. | Chart: Yahoo Finance

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.

Advertisement

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.

Overvalued Stocks Could Face Steep Correction, Analysts Warn

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 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.

Advertisement

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.

Advertisement

This article was edited by Josiah Wilmoth.

Last modified: January 22, 2020 11:40 PM UTC

Sam Bourgi @hsbourgi

Financial Editor of CCN.com, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE, Yahoo Finance and Forbes. Sam is based in Ontario, Canada and can be contacted at sam.bourgi@ccn.com

More of: Dow Jones
Show comments