'Temporary Adjustment or Crash Signal?'... New York Stock Market Plunges Without Negative Factors

Growing Uncertainty... Market Seen in Correction Phase
Some Fear Stock Market Decline... "Could Fall Below March Lows"
'Fear Index' VIX Rises 26.5% in One Day... "Risk Increasing"

[Image source=AP Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] "The U.S. stock market is flashing warning signals." (CNN broadcast)

As the U.S. stock market, which had been soaring mainly in technology stocks, plummeted on the 3rd (local time), the market widely assessed that the decoupling from the real economy has ended and the market has entered a correction phase. However, considering the U.S. presidential election and the spread of the novel coronavirus (COVID-19), concerns have also been raised that the market's uncertainty is increasing and a different pattern from the previous rally may emerge.

According to Bloomberg News and others, market experts evaluated that the correction occurred at the market close because stock prices suddenly fluctuated without any issues causing a drop in major IT companies' stock prices. Although the economic indicators released that day fell short of expectations, they were not considered severe enough to cause a crash. The U.S. Department of Labor announced that the number of new unemployment claims, unadjusted for seasonal factors, was 833,000 last week, a slight increase from 826,000 the previous week. Also, the non-manufacturing Purchasing Managers' Index (PMI) released the same day was 56.9, down from 58.1 the previous month.

Experts have expressed concerns about a bubble forming in the stock market rally and questioned the sustainability of the bull market. It is clear that a stock market continuing to rise based on abundant liquidity despite a sluggish real economy is problematic. Apple and Tesla, which led the bull market but plunged on this day, have risen 64.7% and 41.8%, respectively, since the beginning of this year.

Chris Zaccarelli, Chief Investment Officer at Independent Advisor Alliance, said, "Since there is no clear cause triggering the sell-off, it should be interpreted as a correction for profit-taking." Tom Lee, founder of investment research firm Fundstrat, said, "This is not a sign that the economy is shaking. We need to catch our breath here," and evaluated this market correction as healthy.

However, some raise concerns that the stock market may decline as investors' perceptions of technology stocks change. Mohamed El-Erian, Chief Economist at Allianz, told CNBC, "If investors change their views on the fundamentals of technology stocks, the market could fall further," predicting a possible additional 10% drop. Ron William, founder and market strategist at RW Advisory, warned that the market could face a 'Minsky moment,' indicating a sharp collapse, and that the S&P 500 index could fall 20-30% or more, dropping below the March lows.

Amid conflicting forecasts, market uncertainty is expected to be maximized for the time being. Discussions on additional fiscal stimulus by the U.S. government remain deadlocked, and the U.S. presidential election remains a factor that could shake the market. The economic recession caused by COVID-19 is also recovering slowly.

Accordingly, the Chicago Board Options Exchange (CBOE) VIX index, known as the so-called 'fear index,' recorded 33.60 that day, rising 26.5% compared to the previous day. CNN reported that some analysts are concerned about the VIX index continuing to rise despite the S&P 500 index recently hitting an all-time high. Daryl Jones, head of research at financial research firm Hedgeye Risk Management, said, "Usually, when the stock market rises and the VIX index remains low, it is a good sign for investors, but a rising trend in a volatile market means that risks are increasing."

Billionaire investor Bill Ackman, founder of hedge fund Pershing Square, appeared on Bloomberg TV and said about the stock market crash, "It's not the beginning of the end, but I would say a period of greater uncertainty in U.S. history is coming," adding, "The market does not like uncertainty."

This content was produced with the assistance of AI translation services.