Stocks sink again as fear returns (2024)

FAQs

Why are stocks dropping? ›

Stocks tumbled to start the week with fears about a possible recession and a surging Japanese yen sending volatility spiking to levels not seen since 2020. The Dow Jones Industrial Average sank 1,134 points, or 2.9%, to start the day. The S&P fell 4.2%.

During a recession, stock prices typically plummet. The markets can be volatile with share prices experiencing wild swings. Investors react quickly to any hint of news—either good or bad—and the flight to safety can cause some investors to pull their money out of the stock market entirely.

An investor may also continue to hold if the stock pays a healthy dividend. Generally, though, if the stock breaks a technical marker or the company is not performing well, it is better to sell at a small loss than to let the position tie up your money and potentially fall even further.

The Nikkei Stock Average posted its largest single-day drop in more than four years, driven down by signs of cooling in the U.S. economy and an interest-rate increase by the Bank of Japan.

Recession worries mount

On Friday, the S&P 500 and Nasdaq experienced significant declines following new data that indicated signs of weakness in the U.S. economy. The July data has shown that manufacturing activity contracted at its fastest rate since December 2023, and job growth slowed significantly.

Do You Lose Money When Stocks Drop? When the stock market declines, the market value of your stock investment can decline as well. However, because you still own your shares (if you didn't sell them), that value can move back into positive territory when the market changes direction and heads back up.

While selling stocks during a market downturn might make you feel better temporarily, doing so reactively because stocks are tumbling isn't a good long-term investment strategy. Volatility is a normal part of investing in the stock market, so occasional market selloffs should be expected.

Equity Sectors

On the negative side, energy and infrastructure stocks have been the hardest-hit in recent recessions. Companies in these sectors are acutely sensitive to swings in demand. Financials stocks also can suffer during recessions because of a rising default rate and shrinking net interest margins.

Stocks peak about six months (26 weeks) ahead of the start of the recession. Stocks bottom about a year after the recession starts. After bottoming, stocks take about 3.5 years to return to near their prior peak.

The 3-5-7 rule in trading is a risk management guideline that suggests limiting the amount of capital you put into any single trade. According to this rule, you should not risk more than 3% of your trading capital on any one trade, no more than 5% on any one sector, and no more than 7% on all trades combined.

Should I pull my money out of the stock market? ›

Key Takeaways. While holding or moving to cash might feel good mentally and help avoid short-term stock market volatility, it is unlikely to be wise over the long term. Once you cash out a stock that's dropped in price, you move from a paper loss to an actual loss.

The "7-8% loss rule" is a risk management strategy commonly used in stock trading and investing. This rule suggests that an investor should sell a stock if its price falls 7-8% below the purchase price. The main idea behind this rule is to limit potential losses and protect capital.

US stock markets sank on Monday following nosedives in Asia and Europe as fears rise about slowing American economic growth. In the US, the S&P 500 slumped 4.1% as the tech-heavy Nasdaq plummeted 6.3%.

The global rout in stock markets has deepened as the FTSE 100 suffered its worst drop in more than a year amid fears of a US recession. European markets were red across the board, following another brutal sell-off in Asia as Japan's benchmark index suffered its worst day since Black Monday.

By this we mean that share prices change because of supply and demand. If more people want to buy a stock (demand) than sell it (supply), then the price moves up. Conversely, if more people wanted to sell a stock than buy it, there would be greater supply than demand, and the price would fall.

Key factors behind stock market crash: Sensex and Nifty faced sharp declines amid fears of a US recession, yen carry trade unwinding, geopolitical tensions, overvaluation, and lackluster Q1 results. Blue-chip stocks like Tata Motors and Tata Steel suffered the most.

“Bottom line, this massive rotation from tech and tech related sectors was caused primarily by investors positioning for a rate cutting cycle and secondarily by anticipation for a Trump administration and negative tech news,” writes Sevens Report's Tom Essaye.

After all, even when the market has had a good run, lifting your holdings, you might still have some stocks that are below where you bought them. If you're looking to lock in some of those gains (aka tax-gain harvesting), selling some of your losers can help minimize your capital gains taxes.