The U.S. stock market suffered its biggest decline since June on Thursday as the S&P 500 fell 3.5% and the VIX index, aka the fear index, climbed to a 2 ½-month high, breaching its 200-day moving average. The Nasdaq fell almost 5%, its biggest drop since March.
Multiple reasons circulated for the big drop, which was led by a sharp decline in tech stocks —the sector that had been leading the recent rally to record highs. Apple shares closed down about 8%; Google, almost 6% and Tesla, off 9%.
Previous “explosive moves” in those stocks had worried Mohamed El-Erian, chief economic advisor at Allianz and the former CEO of Pimco. Their rallies were signs of excessive risk-taking in the stock market when “corporate and economic fundamentals have yet to reflect a sustained and convincing recovery from COVID-related damage,” explained El-Erian in a Financial Times op-ed on Monday.
El-Erian also noted that “sophisticated investors” were expressing caution with the use of derivatives, which contributed to the jump in the VIX. Retail investors will be vulnerable when the downturn comes, El-Erian wrote.