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Here’s Why S&P 500 Fell for 4th Straight Day

Here’s Why S&P 500 Fell for 4th Straight Day

It was just 12 trading days ago that the S&P 500 capped an almost uninterrupted 60% rally from its March lows, leaving the benchmark at the most-expensive level since the height of the Internet bubble. Since then, about $3 trillion of the index’s value has been erased as it tumbles toward a correction.

Suspected culprits for the selloff abound: Congress hasn’t agreed on another fiscal stimulus package, an increase in Covid-19 case counts in Europe is raising the specter of more lockdowns, and the Federal Reserve last week failed to give new details on its bond-buying plans. Prior to those headlines, stock valuations had been surging, setting the stage for a swift reversal whose speed rivals any in history.

While it’s often said that valuations are poor market-timing tools, and rock-bottom interest rates do bolster the case for higher stock multiples, there were plenty of signs that equity prices were getting stretched. When the S&P 500 last hit a record on Sept. 2, the benchmark traded at 27.8 times reported earnings, surpassing levels from 2002 for the first time to reach the most expensive since 2000.

“Sometimes when you look down from a high height, it’s scary — and it works that way with markets and valuations too,” said Lawrence Creatura, a portfolio manager at PRSPCTV Capital LLC. “Investors are instructed by the past; we are all students of the past. And those history lessons oftentimes leak into investor consciousness.”

The S&P 500 fell 2% as of 12:30 p.m. in New York on Monday, bringing the index’s loss since Sept. 2 to 9.1%, approaching the 10% threshold that many investors consider to be a stock-market correction. The tech-heavy Nasdaq 100 Index was down 0.7%, extending its decline from a record to almost 13%.

Investors have been whiplashed by extremes in market moves this year. The S&P 500’s fastest fall into a bear market on record earlier this year was followed by its hottest five-month streak since the 1930s. The Nasdaq 100’s rally was the most forceful since the dot-com era. Technical measures of momentum for both benchmarks had reached the highest since early 2018.

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