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What’s behind Wednesday’s market selloff?

A financial storm sent stocks plunging to their biggest losses in eight months. The Dow Jones Industrial Average plunged 831 points. The Nasdaq fell 316 percent. Amna Nawaz talks about what may have prompted the selloff with Hugh Johnson, Chief Investment Officer at Hugh Johnson Advisors. Johnson says it’s a “severe correction.”

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  • Amna Nawaz:

    A financial storm sent Wall Street to dramatic losses today, the worst in eight months.

    The Dow Jones industrial average plunged 831 points, or 3 percent, to close at 25598. The Nasdaq fell 316 points, or 4 percent. And the S&P 500 gave up 94 points, also 3 percent.

    For more, we turn to Hugh Johnson, a well-known stock market watcher who's the chief investment officer at his own firm, Hugh Johnson Advisors.

    Mr. Johnson, thanks for making the time.

    I want to ask you about something the president just said moments ago. He called what we're seeing here a correction we have been waiting for, for a long time.

    Is that your read on what we saw today?

  • Hugh Johnson:

    Yes, everybody's going to have — Amna, everybody's going to have a very different opinion on that.

    The real question — and, of course, it's being raised — is, is this simply a correction in an ongoing bull market, or a bull market that has further to go? Or this has been a very long bull market.

    So many are asking the question, is this the end of the bull market and the start of a bear market that will be accompanied by an economic recession? My answer to that question is essentially in agreement with the president, that, based on everything that I'm looking at, this looks to me as a correction, and a severe correction, in an ongoing bull market.

    And, from that point of view, Amna, I guess you would have to say that's kind of the silver lining behind the dark cloud of what happened today. Stocks are getting to levels that are starting to make a lot more sense from a value point of view.

  • Amna Nawaz:

    Help us understand some of the elements behind the drop today, though. Tech companies were particularly hard-hit. They're usually a hot sector in the economy. What happened there?

  • Hugh Johnson:

    Yes.

    Well, that's — that's a real good example. The stock market itself, of course, there has been such a long bull market, and everybody sort of instinctively says it's been that long a bull market. Maybe I should cash in or sell a few stocks to reduce my exposure to the equity markets.

    And they say that in particular about technology, because technology, the technology stocks, things like Facebook and Apple and Netflix and Google, they have had the big run to the upside. Their valuations were very rich.

    So they're really not only talking about the broad market being a little bit pricier, having had a long bull market, but we're talking in particular about technology stocks. And the worry, of course, is that we're going to get a slowdown in the earnings there.

    But, basically, they got to levels which everybody worries about, that they're too high, and, therefore, that's a real target for reducing your equity exposure, or your stocks.

  • Amna Nawaz:

    We heard the president also mention the Federal Reserve tightening its monetary policy.

    What about rising interest rates? Did those contribute to the decline we saw today?

  • Hugh Johnson:

    Good, good, good point.

    Yes. The Federal Reserve has been raising interest rates for a while. Longer-term interest rates in response to that have also been going up.

    But I think what's happened, Amna, is that what's really concerned everybody is, everything's been pretty gradual. But the rate picture got a little bit more severe in the last three or four days, where we saw what might be called a spike up in interest rates.

    And that alone was really sort of part of the catalyst, along with the concerns about technology stocks. Those two things together got — a lot of everybody that was sort of edgy about this market, got them off the fence and got them selling. And that started to feed on itself.

    So, no question about it. Interest rates, the high level of technology stocks, those combined to be the catalyst to get people selling.

  • Amna Nawaz:

    Very briefly now, there's been a lot of talk about trade tensions, specifically tariffs between the U.S. and China.

    How did those play a role in today?

  • Hugh Johnson:

    They played a role because you have a lot of companies now that are starting to feel or see the impact on their operating profits from those tariffs.

    And they're telling us about it. So the concern there is that companies are not going to post the kind of earnings we were hoping or expecting. And that's largely because of the impact of trade and tariffs on their earnings.

    And we're starting to see lots and lots of reports to that effect.

  • Amna Nawaz:

    Hugh Johnson, thank you very much.

  • Hugh Johnson:

    You're welcome.

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