There’s plenty for investors to digest right now. Accordingly, with so much mixed data and uncertainty, the current downside move is sparking a discussion among investors who may be asking: “Why are stocks down today?”
It’s a fair question. We’ve seen rather broad bullish sentiment build so far this year, as bond yields have come down. Expectations of rate cuts (likely due to a recession) have proliferated. Thus, many investors may believe we’ll see another pandemic-style recession. In that case, getting in now before stocks make new highs on zero interest rates makes sense.
However, today’s price action tells a different story. Indeed, there are reasons why investors seem to be growing bearish.
Let’s dive into why major stock indices like the Nasdaq and S&P 500 are trending lower.
Why Are Stocks Down Today?
While most stocks are down today, it’s not necessarily a fair characterization of the entire market. Gold stocks continue to do well, as gold hovers above the key psychological threshold of $2,000 per ounce. Various commodity players (specifically energy stocks) are also outperforming with oil prices on the rise.
However, rising commodity prices and a surge in the price of gold doesn’t necessarily bode well for the rest of the market. Oil is an input for most companies. And gold is seen as a market hedge, indicating something insidious could be beneath the economic surface.
Today’s economic data reports showed signs that this may be the case. The latest ADP private payrolls report showed slowing job growth. Other economic reports have shown similar signs. And while the market has viewed bad news as good news in the past, it appears worries about a potential recession are taking center stage today. It’s bad news = bad news right now for the stock market.
As such, it appears investors are now trying to gauge how bad a recession will be, when it comes. The yield curve remains extremely inverted, a sign that a recession is inevitable (if you believe data going back decades). Accordingly, with the yield curve now steepening — what typically happens right before a recession hits — investors are strapping in for a bumpy ride. For many, that may take the form of buying gold stocks and selling growth equities.
We’ll see how everything ultimately shakes out from here. That said, the stock market is much smarter than any individual. If enough market participants think the economy is going in one direction, it most likely will. Whether that’s a result of a self-fulfilling prophecy playing out or not, doesn’t really matter.
On the date of publication, Chris MacDonald did not hold (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.
