Today, each of the three major U.S. indices are down. In fact, these indices are all down substantially, between 0.7% and 0.83% at the time of writing. These outsized moves have many investors asking the question: Why is the stock market down today?
Indeed, such a question is a difficult one to answer. After all, a number of factors play into such an analysis. And looking at the bigger picture, it appears many of the factors driving the stock market higher are still in place. Interest rates remain low, monetary and fiscal policy remains highly accommodative, and Americans have more disposable income than they have had in quite some time due to the pandemic restricting their spending power.
That said, valuations across the market have begin to reach astronomical levels. Accordingly, a breather of sorts may be warranted from time to time. Indeed, investors need to consider the fact that we’ve been hitting new all-time highs on a frequent basis in recent weeks. Some sort of cooling off is likely healthy.
That said, let’s dive into some of the key factors experts are relying on as certain factors are driving the market lower today.
Why Is the Stock Market Down Today?
Among the factors driving valuations in the market are bond yields. The 10-year U.S. Treasury yield is commonly used as the risk-free rate for models. When it’s lower, that’s generally a good thing for stocks.
With the 10-year yield dropping to 1.3%, some have speculated this “goldilocks” period we’re seeing in the markets could continue for some time. However, others believe these low rates are indicating that the bond market doesn’t have faith in this recovery. When bonds get bought up en masse and yields drop too quickly, that’s not necessarily a good thing. Accordingly, investors may view this drop from 1.75% to 1.3% as signaling we could be in for a period of slower-than-expected growth over the near term.
Additionally, recently reported retail spending numbers did little to add exuberance to investors. Retail spending actually fell 1.3% over May numbers, suggesting economics believe real gross domestic product (GDP) numbers could be decelerating.
Add on top the continued threat of Covid-19 variants, and the outlook today appears to be bleak.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
