S&P 500 Falls The Most Since February – Nasdaq 100 Falls 4.44%

The stock market cratered on Wednesday. The Dow fell 3.16%, the Nasdaq fell 4.08%, the Russell 2000 fell 2.86%, and the S&P 500 fell 3.29%.

You can see the daily changes in all four indexes in the charts below. This was the biggest decline since February. There wasn’t a major catalyst for such a vicious decline. But there were ample reasons for stocks to fall.

Stocks were overbought at the peak in September. The S&P 500 hadn’t declined or increased more than 1% in 74 days. This was one of the least volatile periods in market history.

There weren’t any 1% moves in the S&P 500 up or down in Q3 for the first time since 1963.

Since October is the most volatile month of the year, it’s not a surprise this decline occurred. There are worries about a global slowdown, weakness in China, and a hawkish Fed.

Since these aren’t new worries, some investors are perplexed. My answer to them is the market doesn’t price in risk smoothly. Negative catalysts cause violent reactions. Since we hadn’t had a correction in so long, this was almost expected.

S&P 500 Falls – Bullish In The Short Term

Since 1928 there have been 325 days with 3% losses or worse. That equates to 3.5 per year on average. They usually happen in bear market recessionary periods. Occasionally they are sprinkled into bull markets.

Now that we had one, I’m bullish on stocks in the short term. Don’t question why stocks fell 3.29% in one day instead of 1.5% in two days; just go buy the stocks you like. I prefer the small caps. The Russell 2000 outperformed on Wednesday. However, it’s down 9.5% since its record high in August.

The CNN Fear and Greed index is at 8 out of 100 which signals extreme fear. This is an extremely bullish indicator. Many bearish investors are mocking this indicator because the S&P 500 is only down about 5% from its record high.

If we are headed for a bear market, this correction isn’t a big deal. However, even if you believe that, it’s not the time to sell stocks as the market is oversold.