Here are all the reasons why the stock market crashed so badly on Monday – NBC New York

• Concerns about the economy and the Federal Reserve’s seemingly slow response, as well as worries about corporate profits, dragged markets down on Monday.
• When you look at it from a high-value stock market perspective, all signs indicated a sell-off was imminent.
• “It’s just the perfect storm of slowing growth, a crowded market and risk aversion all coming to a head at the same time,” said John Belton, portfolio manager at Gabelli Funds.

There are a lot of blame to be had for Monday’s market slump, from worries about the economy and a seemingly slow response from the Federal Reserve to a weakening of popular global exchanges and concerns about corporate earnings.

All of these factors played a role to some extent, and each helped tell a story of a changing investment landscape that likely did not fully materialize.

“It’s very much a regime change, which is a big part of the sentiment,” said Robert Teeter, chief investment strategist at Silvercrest Asset Management. “The market got a little ahead of itself during this period of growth that we had. Now we’re correcting back to where we were in April and May, and it was a sharp correction because it was a very important wake-up call.”

That call came in the form of a sell-off that sent the Dow Jones Industrial Average down more than 1,200 points early Monday and briefly dragged the S&P 500 down 9% from its July record.

Treasury yields fell as bond investors bet the economy would slow and that the Federal Reserve would soon be forced to cut interest rates.

The economic worries began Thursday, when disappointing manufacturing and layoff data fueled concerns about the economy. They intensified Friday, when the Labor Department reported lower-than-expected job creation and a rising unemployment rate in July, triggering a sure-fire recession signal known as the “Sahm rule.” Soon, traders began pricing in aggressive Fed rate cuts after expecting the central bank to do nothing for the rest of the year.

Indeed, the central bank was not far from investors’ minds, as there was a growing belief that the Fed was waiting too long to cut short-term interest rates, which are now at a 23-year high.

Market prices on Monday suggested a near-certain Fed rate cut of half a percentage point at its September meeting, followed by rate cuts in November and December that would total 1.25 percentage points.

‘Perfect storm’ sinks markets

“It’s just a perfect storm of slowing growth, crowded positioning and risk-off sentiment all coming to a head at the same time,” said John Belton, a portfolio manager at Gabelli Funds. “The market is really going to follow the data now, and there’s going to be some easing in the background.”

In addition to concerns about economic and monetary policy, the market has had to contend with an unwinding of a popular trade of borrowing money in cheap currencies like the Japanese yen and buying higher-yielding currencies — the “carry trade” — that helped boost global markets with liquidity.

An unexpected interest rate hike last week by the Bank of Japan, as well as currency intervention, raised fears that the carry trade was over. The yen rose sharply on Monday, and Japanese stocks had their worst day since Black Monday in October 1987.

Corporate profits have also come into question.

In the second quarter of earnings season, 78% of companies beat earnings estimates, but only 59% beat revenue estimates, according to FactSet. What’s more, it was the outlook of some Silicon Valley leaders that irritated the market, and companies like Nvidia — down 11% in the past five days — paid the price.

Finally, geopolitical concerns persist, with markets worried about developments in the Middle East and Ukraine, as well as the rapidly changing political situation in the U.S. that has left presumptive Democratic nominee Kamala Harris in a virtual tie with Republican Donald Trump in many polls.

Given the high-valuation environment in the market — the S&P 500 was trading at 20.7 times forward earnings last week, or about 15% above its five-year normal — all signs were that a sell-off was coming.

“This is a very high market that is soaring and is riding on a lot of sentiment and emotion. Momentum has been a winning trade for several months now,” said Michael Farr, CEO of Farr, Miller & Washington.

“While people make the fundamental arguments that make them feel comfortable, deep down everyone knows that things don’t go up 30% in six months,” he added. “So when you’re in a period of huge gains, it’s very easy to take the profits. It’s much easier to say, ‘I want to take my chips and go home.’”

There is no time to panic

Still, Farr, like many others on Wall Street, doesn’t think now is the time for the Fed to take drastic action.

Even with rising unemployment and a weakening manufacturing sector, most other economic indicators are strong.

Service sector data on Monday came in better than expected, with nearly 8.2 million jobs still vacant and the Atlanta Federal Reserve forecasting third-quarter growth of 2.5%, though that is based on a limited data set.

“Two weeks ago, the economic data was pretty reasonable, the employment data was reasonable,” Farr said. “But over the weekend, we went into doomsday fears, and that happens every time.”

None of the people interviewed Monday said they thought it was time for investors to make a major change.

Silvercrest’s Teeter said he was simply advising clients to rebalance, while Gabelli’s Belton said he would keep an eye on whether the current downtrend changes.

“I see this as an opportunity, a huge overkill, and that doesn’t mean it can’t happen again,” Farr said. “Momentum breeds momentum up and momentum down. People say they hate volatility, which is a lie. They hate downward volatility. Nobody, nobody hates upward volatility.”