S&P 500 loses over $1T market cap: What's the reason?
What's the story
The US stock market has witnessed a major downturn for the fourth consecutive week. The S&P 500 index, a key benchmark of the US stock market, lost over 2.5% last week alone, translating to a market capitalization loss of over $1 trillion. The decline comes amid fears of an extended US-Iran war and its potential impact on global oil prices and inflation rates.
Market performance
S&P 500 index's steep decline
In the last month, the S&P 500 index has witnessed a steep decline of 5.83%, wiping out over $3 trillion in market capitalization. The index closed below its 200-day moving average on Thursday, a major indicator of overall market health that could lead to forced selling. Sameer Samana from Wells Fargo Investment Institute observed this volatility and said he thought the true test of today would be what investors decide to do at the close, before the weekend.
Volatility factors
'Triple-witching' event adds to market volatility
The market is bracing for more volatility as nearly $5.7 trillion in notional options linked to individual stocks, indexes, and exchange-traded funds were set to expire yesterday. This quarterly event, known as "triple-witching," is notorious for causing sudden price swings due to the abrupt disappearance of large derivatives exposure. Citigroup Inc.'s data since 1996 shows Friday's tally is the largest March expiry yet.
Economic concerns
Interest rate freeze amid economic uncertainties
Lower interest rates could boost the economy and investment prices. However, they also risk worsening inflation. With oil prices soaring, investors see little room for global central banks to cut interest rates. This week alone, the Federal Reserve and central banks in Europe, Japan, and the UK kept their interest rates unchanged amid these economic uncertainties.
Geopolitical impact
Iran's attacks raise oil price concerns
Despite Israel's warning against targeting energy infrastructure, Iran has continued its attacks on Arab states in the Persian Gulf. Axios reported that the US is considering plans to seize Iran's strategic oil-export terminal Kharg Island, in a bid to pressure Tehran into reopening the Strait of Hormuz. Mark Malek from Siebert Financial said, "I think that the market is right now coming to grips with the reality that higher energy prices are going to persist longer than expected."