Stock investors bid goodbye to their 2018 gains on Tuesday.
The heavy selling on Wall Street continued, with losses in popular tech stocks spreading to the broader market, a rout that erased the 2018 gains of the Dow and broad Standard & Poor's 500 stock index.
Nervous investors have been dumping shares of U.S. companies for weeks, as worries about the global economy mount due to obstacles ranging from the fallout from the U.S.-China trade dispute to signs of slowing iPhone sales to fears that Federal Reserve interest rate hikes will hurt growth.
The selling pressure was again focused in the hard-hit technology sector, where shares of the so-called FAANG stocks – Facebook, Apple, Amazon, Netflix and Google parent Alphabet – were under pressure. All five stocks, which had been leading the market higher during the bull market, are now down more than 20 percent from their highs in the past year, which puts them in bear-market territory. The biggest decliners are Facebook, which has been hounded by data privacy issues, down nearly 40 percent from its recent peak, and Netflix, which is off 37 percent.
"The sell-off is a continuation of the rotation away from high-flying tech names and ongoing worries about the U.S.-China trade (dispute)," says Nick Sargen, senior investment advisor for Fort Washington Investment Advisors.
At the close, the Dow Jones industrial average, which was down almost 600 points at its low, was 552 points lower at 24,466 and trading 1 percent below where it finished in 2017. The S&P 500 finished 1.8 percent lower, pushing it into negative territory for the year. The large-company stock index, considered a proxy for the health of the broader market, briefly dipped 10 percent below its Sept. 20 high, putting it back in so-called "correction territory." It finished the session 9.9 percent below its peak.
The technology-dominated Nasdaq, which had fallen close to 3 percent earlier and briefly into the red for the year, fell 1.7 percent, extending its losses from its late August high to nearly 15 percent.
After Tuesday's plunge, the Dow is 8.8 percent off its recent high.
In a sign of just how bad the carnage on Wall Street has been in the recent sell-off, more than 45 percent of the stocks in the S&P 500 are down more than 20 percent from their highs in the past year, according to Bloomberg data. That means nearly half of the stocks in the broad index are in a bear market.
While the S&P 500 is only halfway to a bear market drop of 20 percent, Michael Wilson, chief U.S. equity strategist at Morgan Stanley, told clients in a report this week that he believes Wall Street is already in a bear market. The good news, he noted, is that 90 percent of the valuation damage the market has suffered in the sell-off is complete.
Some Wall Street pros don’t think the selling will end and the market won't make a bottom until fear spikes and another whoosh lower occurs.
“I suspect we need to wash this out deeper before all is said and done,” says Chris Verrone, a partner at Wall Street research firm Strategas Research Partners.
After a long period in which investors made money by buying stocks after a sizable swoon – an approach known as "buying the dips" – that strategy is no longer working, adds Joe Quinlan, chief market strategist at U.S. Trust.
The market's losses mount as a long period of low interest rates comes to a close, as the U.S. central bank pushes rates higher in an attempt to get them back to more normal levels. Higher rates result in pushing up borrowing costs on things such as homes and cars.
Investors are also grappling with concerns that the economy, which has been performing well, has already seen its best days. Most Wall Street economists, however, don't see a recession on the horizon.