One of the wildest runs in U.S. stock-market history began with the collapse of arcane bets on volatility and ended with a sober realization: The easy ride is over. After heart-stopping swings in the Dow (Down 1,000 points! Up 500 points!), a market correction is finally here.
But why—and why now? Inflation, interest rates, valuations, computers, ETFs, Trump; plenty of reasons were offered up. Among the lingering questions is the big one: Is this a hiccup or the start of something worse?
Monday, Feb. 5
8 a.m. EST, 11 Wall Street, Lower Manhattan
Even before the opening bell, Monday looks like a bad day on the New York Stock Exchange. After the Dow Jones Industrial Average plunged a devilish 666 ahead of the weekend, the futures are pointing to trouble.
9:30 a.m. EST, Lake Forest, Illinois
Thomas Forester has been here before: he shot to fame after his mutual fund turned a profit through the 2008 meltdown. Now, a decade later, he’s buying options—puts— to hedge against the risk that the stock market will tank again today. But even Forester is shocked by what comes next. “This week feels like a month already,” he says later.
11 a.m. EST, Midtown Manhattan
It was the hot trade on Wall Street. Now, newfangled investments linked to volatility in the stock market — until recently, obscure niche products — are starting to explode. The Dow industrials begins to tumble: 200 points, 300 points, 400 points. Exchange-traded products (ETPs) and exchange-traded funds (ETFs) that are tied to volatility — in particular, the VIX index in Chicago — are sinking in a cascade of sell orders.
3 p.m. EST, Key Biscayne, Florida
“Shut up and let me trade!”
Brian Frank isn’t normally screamer. But the market looks like it’s falling apart, and his analyst is yammering in his ear. “I have a hedge fund here!” Frank tells him. “I have to do some short-term trades here!”
After the long melt-up in stocks, Frank, of Frank Capital Partners LLC, is sensing opportunity now that stocks are finally starting to sink. He’s been saying valuations are stretched. But, right now, he’s got to focus. As he puts it later: “It was like when you snap your fingers and you tell your kids, ‘Hey, listen to me, something is happening here. This isn’t another day at the office, this isn’t business as usual.”
He goes on: “You don’t get days like this often. No. 1, we have to capitalize on it. No. 2, we have to protect our clients.”
3:10 p.m. EST, Lower Manhattan
It keeps getting worse. In just 15 minutes, the Dow plunges 850 points. Still, this is hardly a panic. People are worried, yes—but this feels different from 2008 or 1987 (comparisons will inevitably be made). Nonetheless, Fox News, President Donald Trump’s favorite network, cuts away from his speech in Ohio, where Trump is talking up tax cuts, to focus on the markets.
3:42 p.m. EST, Ohio
For months Trump has taken credit for the rising stock market. Now, as the market swoons, he takes to Twitter to celebrate the Republican tax cut.
4 p.m. EST, 11 Wall Street
It’s the biggest point decline in the 121-year history of the Dow industrials: 1,175.21 points, or 4.6 percent. The sheer magnitude of the decline, and the hair-raising pace, has unnerved the pros and ordinary investors alike.
In Greenwich, Connecticut, Frank Ingarra, the head trader at NorthCoast Asset Management LLC, gets an email from his priest. Ingarra is on the finance committee of St. Roch Roman Catholic Church.
“Frank, what’s going on in the market?” the priest asks.
“Father, look, in my firm we are expecting a pull-back. Please don’t worry, father, our money is in good hands.”
Tuesday, Feb 6.
5 p.m., EST, Singapore
It’s morning in Singapore, and the news alerts and text messages are lighting up cells phones. Kelvin Tay is going to have to deal with this. Clients aren’t going to care that he’s come down with pneumonia.
Tay, the regional chief investment officer at UBS Wealth Management, rushes to his doctor at 8:30, gets a chest X-ray and hits his desk around 10. In between calls and texts flood his phone—until the battery finally dies.
“It was just hell,” Tay says.
Job 1: Hold clients’ hands. “We basically went into a calming mode,” Tay says. His team’s message: The economic fundamentals are sound. The line will become a mantra across global finance, even as markets gyrate and nerves begin to fray. Tay’s advice is to look for buying opportunities as stock markets across Asia follow U.S. markets lower.
9:00 a.m. EST, Zurich
Fallout is mounting from the implosion of an array of arcane bets against stock-market volatility. Credit Suisse Group AG moves to liquidate one investment product and more than a dozen others are halted as their values sink toward zero. Volatility — and trades linked to it — soon become the collective obsession of the global Wall Street.
Eric Peters, chief investment officer of One River Asset Management, in Greenwich, Connecticut, is stunned by the speed of the collapse in these investments. He’s been warning that investors have been lulled into complacency by a long period of preternatural calm. Still, what’s happening now seems off.
“What I don’t know yet is if this is a tremor or if it’s a crash," he’ll say as the week winds down.
11 a.m. EST, Lexington, Kentucky
President Trump, who’s taken credit for a rising stock market, isn’t tweeting about the decline yet. But James Bullard, president of the Federal Reserve Bank of St. Louis, says what many investors have been thinking for months: Come on, this stock market has been looking frothy for a while.
“This is the most predicted selloff of all time,” Bullard tells reporters. The market kept going up and up and up. It’s no wondering it’s going down and down and down. “What is more interesting is it has been very fast, it’s been possibly aided and abetted by technical trading—algorithmic trading,’’ he says. Others are pointing at algos, too. Quants complain they (or at least their creations) are being turned into the latest Wall Street scapegoats.
3 p.m. EST, Lake Forest
Like everyone else on Wall Street, Tom Forester has been watching the VIX: the fear index. He’s alarmed by what he’s seeing: Volatility is back—big. The VIX has leaped to 50 now from about 17 on Monday. “That is nosebleed-crazy,” he says. “Empire-State high.” He’s still trading put options, trying to cushion to blow.
“It’s all happening so fast,” he says. “So I’m pulling my hair out figuring out what to do.” He made money on Monday — and will go home on Tuesday “thankful I didn’t lose my shirt.”
In a CNBC interview from the White House lawn, Kevin Hassett, chairman of the White House Council of Economic Advisers, says Trump administration officials have been in "constant contact” with financial regulators. Among those watching: U.S. National Economic Council Director Gary Cohn and Treasury Secretary Steve Mnuchin, both veterans of Goldman Sachs.
Wednesday, Feb. 7
6:30 a.m. EST, Midtown Manhattan
Chris Pollard, a strategist at Cowen & Co., is already at his desk. He’s soon waiting to see if the S&P 500 Index will slip below its 50-day moving average — a bad sign. By mid-morning, the average has held. At last, the market seems to be finding a bit of a footing. Like his counterparts up and down Wall Street, he’s fielding calls from anxious clients. Is it safe to dive back in, they ask? The answer, for the moment, is no.
“When my clients, who I care about, are losing money, there’s a heightened awareness to make sure you know what’s going on,” Pollard says. “There’s a responsibility behind that.”
9:59 a.m. EST, Washington
After trumpeting the stock market’s long rally, Trump hits Twitter to address the week’s decline.
Noon, EST, Greenwich, Connecticut
Eric Peters, at One River, senses a change in the market. He’s been telling clients the events of the past days could represent a “paradigm” shift. Many investors have been building their portfolios around volatility. When volatility is low, as it has been until now, people take more risks. Now, the opposite is happening, suggesting the market could fall further.
Everyone is saying the fundamentals are sound. Fine. “But one of the most important but unrecognized fundamentals is market structure,” Peters says.
4 p.m. EST, Lower Manhattan
The Dow industrials close at 24,893. Investors breathe a collective sigh, but this wild ride isn’t over yet.
Thursday, Feb. 8
8 a.m. EST, Lake Forest
Tom Forester is exhausted. He’s running late and decides to work from home because he doesn’t want to risk being stuck in his car when the markets open. On his mind: how to calibrate his portfolio so he protects his clients’ money with missing a rebound.
Forester says. “It’s kind of more instinct—snap judgement.”
10 a.m. EST, Midtown Manhattan
Green. No, red. No wait—green. The stocks start steady and then wobble. Only now a new worry is creeping in: junk bonds. The market tumult has begun to filter through to low-grade corporate bonds. The question on many minds is whether what’s happening in the stock market could dent signature Wall Street businesses like IPOs and bond sales.
Noon EST, Florida
At an investment conference, Anne Dias, of Aragon Global Holdings LLC, is listening to CEOs and investment managers and then checks her phone. The market is sinking again—“falling like a knife,” she later says. Her takeaway: the disconnect between the upbeat mood here and the growing angst in the markets.
3 p.m., Lower Manhattan
Any respite is short-lived. Once again, stocks sink into the close. This time, it’s official: the correction—a 10 percent decline—has finally arrived.
Friday, Feb. 9
6:30 a.m. EST, Los Angeles
All week, Todd Morgan, chairman of Bel Air Investment Advisors, has been getting up around 3:30 a.m. L.A. time. Now he’s up again, going through emails and research reports, trying to get a read on the markets. He takes a 20-minute break to meditate and, at 6:45, heads to his office in Century City.
The phones are already ringing, as they have been all week. About 20 percent of Bel Air’s clients are in the entertainment industry; La La Land tends to get particularly antsy when Wall Street freaks out.
“Are we going to be OK?” clients keep asking. Morgan has been fielding calls from 6 a.m. to 8 p.m. He looks out his window, into the foggy morning: not many people seem to be golfing this Friday at the Los Angeles Country Club.
Yes, you’re going to be fine, Morgan keeps telling everyone. This looks like a healthy correction, nothing more.
Still, he wishes the stock market would bounce back a bit more , “to give people a little comfort over the weekend.”
Noon EST, Lower Manhattan
After opening 130 points higher, the Dow falls as much as 200 points within 90 minutes. The message is clear: this isn’t over yet.
4 p.m., Lower Manhattan
Another breathless day. The Dow lost steam through the morning, rallied and then sank again. By 1:30, it was off roughly 500 points. From there, a quick rally, a sudden drop—and then another leap into the close. At the bell, it was up 330.44, at 24,190.90. Still, it was the market’s worst week since January 2016.
Evening, west of Frankfurt
Europe and Asia will wake up on Monday and, as ever, take their leads from New York. But right now, Guillermo Hernandez Sampere, head of trading at Manfred Piontke Portfolio Management, is packing up after a wild, exhausting week. Everyone is unsettled. It’s been an endless diet of financial TV, WhatsApp, donuts, chocolate. At least there isn’t any alcohol in the office, he jokes.
He was supposed to go hiking this weekend. Now, he plans to spend his Sunday reading up — like just about everyone else in the markets.
“There’s only one thing I can concentrate on right now: it’s the stock market.”