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This Is Why the Dow Suddenly Crashed More Than 500 Points

Last Updated September 23, 2020 1:56 PM
Josiah Wilmoth
Last Updated September 23, 2020 1:56 PM
  • The Dow Jones Industrial Average (DJIA) sold off aggressively on Wednesday after opening relatively flat.
  • The sudden turn lower followed an incredibly bearish statement from Fed Chair Jerome Powell.
  • The downturn accelerated after billionaire David Tepper said the stock market is ridiculously overvalued.

The U.S. stock market appeared ready to take a breather after yesterday’s epic afternoon sell-off. But after opening flat, the Dow Jones Industrial Average (DJIA) suddenly plunged toward hideous losses.

Down as much as 600 points at its lows, the Dow has been rocked by volatility – giving extraordinarily bullish investors “one hell of a wake-up call.”

dow jones industrial average crash, stock market today, djia
The two-day stock market sell-off has wiped as much as 1,000 points off the Dow Jones Industrial Average (DJIA). | Source: Yahoo Finance 

As of 1:16 pm ET, the Dow had bounced slightly off its lows for a net loss of 494.15 points. The 2.08% pullback reduced the DJIA to 23,270.63.

The S&P 500 and Nasdaq were down 1.91% and 2.06%, respectively.

Dow Plunges After Ridiculously Bearish Fed Chair Statement

The stock market’s abrupt sell-off appeared to be triggered by Federal Reserve Chair Jerome Powell.

Speaking at a virtual event for the Peterson Institute for International Economics , Powell seemed to drive a stake into the heart of the argument that the U.S. economy can mount a V-shaped recovery.

The scope and speed of this downturn are without modern precedent, significantly worse than any recession since World War II. We are seeing a significant decline in economic activity and employment…

While the economic response has been both timely and appropriately large, it may not be the final chapter, given that the path ahead is both highly uncertain and subject to significant downside risks

It was difficult to find a silver lining in Powell’s remarkably-downbeat prepared remarks , which lasted just under eight minutes.

Trump Rages as Billionaire Unloads on ‘Overvalued’ Stock Market

Powell’s concerning statement may have sparked the Dow’s mid-morning downturn, but it wasn’t the only thing traders had on their minds.

It didn’t help that President Donald Trump ripped into “rich guys” for speaking negatively about the stock market.

donald trump, stock market
Source: Twitter 

As Northman Trader founder Sven Henrich wryly noted on (where else?) Twitter, it’s usually not a good sign when Trump starts tweeting  about the stock market.

donald trump impact on Dow Jones
According to Sven Henrich, Donald and Eric Trump are “Twitter’s worst investment advisor[s].” | Source: Sven Henrich via Twitter 
Nor did it help that, almost immediately after Trump’s Twitter rant, billionaire David Tepper went on CNBC  and did the precise thing that the president criticized.

The hedge fund manager warned that the stock market is “maybe the second-most overvalued… I’ve ever seen,” trailing only the dotcom bubble.

And he’s not the only one worried about stock market pricing.

Earlier this week, Goldman Sachs strategist David Kostin warned that the S&P 500 was at its most overvalued point since 2002.  Arguing that most of the market’s risks are skewed to the downside, he predicted that stocks could fall nearly 20% from their current levels.

That would give mom-and-pop investors – who piled into stocks to capitalize on what they believed was a “generational” investing opportunity  – “one hell of a wake-up call” indeed.

Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com. Unless otherwise noted, the author has no position in any of the stocks mentioned.