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Stocks had their worst day in two months as the potential for U.S. military action in Syria had investors concerned.
The Nasdaq led the way, falling more than 2% for the first time since June 20. The S&P 500 wasn’t far behind at -1.5%, while the Dow Jones Industrial Average fell 161 points – or just over 1%.
Wall Street typically panics when there’s an impending crisis. The Boston Marathon bombings sent the CBOE Volatility Index (VIX), a.k.a. the “fear gauge”, up 43% in a day. Today, the VIX was up a comparatively modest 13%.
More fear could seep into the markets if the U.S. actually launches an attack. Some say that could happen as early as Thursday.
Even absent the current standoff with Syria, U.S. markets were due for a more substantial pullback. The S&P 500 is currently trading at 18.6 times earnings, higher than at any point since April 2010. Since hitting record highs earlier this month, stocks had pulled back slightly entering the day, with the S&P down just over 3% since August 2.
A true correction, however, typically involves a pullback of at least 5%. After today, we’re almost there.
It seems Syria was the tipping point for an overbought market. Should tensions accelerate, this could be the beginning of a sustained pullback.
Let’s hope it doesn’t come to that – and not just because it would be bad for your portfolio.
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