The sell-off in stock market shocked market participants. On Wednesday, DJI fell by 2.4%, SP500 lost 3%, while Nasdaq fell by 4.4% (it had the largest drop since 2011) within one trading session.
As it was earlier this month, the most vulnerable are high-tech companies, which have been actively pulling the market up for the last two years.
There are three main reasons:
- Some investors fear the rate of revenue growth will decline in the coming quarters, not justifying stock prices, overvalued by historical standards (based on multipliers).
- The import tariffs introduced by the US during previous six months having significant negative impact on businesses that note growth of inflationary pressure, unpredictability of revenue outside the USA due to currency fluctuations.
- At the same time, the adrenaline effect experienced by US economy from tax incentives is fading.
Formally, the US economy is growing faster than the most of its peers. Nevertheless, investors’ expectations were so high that return to the mean causes a strong drops in stock prices.
If there is no evidence of a significant slowdown in economic growth, the most severely fallen stocks may soon regain their buyers. However, there are still high chances of correction in the near future.
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