Stock sell-off is expected to get worse as it continues to accelerate

New concerns about the coronavirus in Washington triggered a fresh sell-off, although the stock market never recovered from its vulnerability to the pandemic.

Investors are concerned about the recent developments of the coronavirus and how it still affects the economy, as the stock market was technically already affected by the pandemic and set for more declines.

The stock market saw a sharp sell-off on Monday which was quite different from the September decline which centered on tech and growth stocks. This time, the market sell-off was led by company stocks that had been gaining on the expectations that the economy would recover soon, and less from the growth companies.

These new coronavirus concerns also threaten other major world economies like the United Kingdom. The nation’s top scientists have warned that there could be an increase of 50,000 new coronavirus cases per day by mid-October if further actions are not taken.

"Things had to have changed for investors to be so nervous," said a chief market strategist at CRFA Sam Stovall. “With Europe starting to see a sharp increase in COVID cases, does that mean they’re going to reimpose shutdowns?”

Another factor affecting the market is the political uncertainty following the death of Supreme Court Justice Ruth Bader Ginsburg, as Republicans push to replace her immediately while Democrats push for a delay until January, after the inauguration. This political divide further increases uncertainties about the elections. Some analysts suspect that Congress will less likely work together in agreement to support the next stimulus package.

“Because the recovery from the earlier September 8 low was so anemic, it was an earlier indication that the market needed to go through more backing and filing before it’s ready to advance,” Stovall said.

According to technical analysts say the stock market has seen a decline that could cause the S&P 500 to enter its 200-day moving average at 3,104 or lesser. The 200-day moving average is a technical indicator watched by both investors and analysts. It is the average closing price of a stock or index over 200 days. It is also considered a momentum indicator, and support in a declining market. However, it could signal more selling it if is broken.

“I would say there’s a high probability we at least test 3,200 if not the 200-day,” said Scott Redler, a technical strategist, and partner with T3Live.com.

Redler warns that a bigger sell-off was just around the corner and a move from the September 2 high of 3,588 to the current 3,140 area would not be a surprise.

“There are four or five things that are nipping at the heels of the market,” he said. “In the last two weeks there have been many signals that this kind of action could happen and overall, it could be healthy.”

After the sharp sell-off during trading hours Monday, the major indexes were able to recover some of their losses by the close. The Nasdaq was especially helped by Apple and Amazon recovery.

Tech giant, Apple which was already in a 20% decline, recovered on Monday as its shares were slightly higher. This encouraged investors to buy some of the market’s favorite shares.

“I think Apple gave a little bit of confidence for the tech to have some dip buying. It helped left the overall indices off the lows. Does that give us confidence that we’ve seen the low of the week or next week? No, it was just a trade,” Redler said. “If it continues, maybe it’s better for the overall market, but for now it’s hard to have a lot of confidence.”

Redler also added that Apple was 22% off its highs.