Amid the darkest stretch U.S. stocks since 2018, one thing stands out. American investors are paying dearly for the optimism that drove the S&P 500 at the start of the year.
While big declines often follow big run-ups, this reversal — coming after weeks of euphoric buying — has been almost historically violent. In the 33 trading sessions ending last Wednesday, the S&P 500 fell on successive days only once. Now it’s had four straight down sessions, the first time since at least 1927 that the index fell so fast in the days after hitting a record.
The speed with which sentiment went from one extreme to the other can be seen in how pervasive losses have been.
The number of NYSE-traded stocks that retreated in the past two days has been the highest of the almost 11-year bull market.
The drubbing is affirmation for skeptics who spent January and February ridiculing investors for their complacency. Conspiracy theories abounded over the first seven weeks of 2020. Disbelieving veterans attributed the market’s buoyancy to everything from passive inflows to Federal Reserve repo operations to U.S. deficit spending — the list was endless.
Now the warnings are bearing out. Take this graph of the Nasdaq 100’s 14-day relative strength index, a gauge of the magnitude and persistence of price movements. It’s seeing its worst four-day stretch on record — worse, even, than during the bursting of the dot-com bubble.
Investors rushed to sell stocks in afternoon trading, with orders briefly hitting the highest since the liquidity-driven sell-off in May 2010, also known as the flash crash. At around 2:30 p.m. New York time, almost 1,800 more stocks traded on a downtick than those trading on an uptick on the New York Stock Exchange.